We see a slow start to what is likely to be another bumpy week as investors await key interest rate decisions from central banks. Investors have become more cautious again after mixed economic data failed to provide a clear outlook for economic activity and also painted a mixed picture for the Fed.
The central banks' task is made more difficult by soaring energy prices, as oil prices have risen more than 11% in the last three weeks. While we have a very quiet economic calendar today, investors are also looking to Calgary, where Saudi Energy Minister Prince Abdulaziz bin Salman will speak about the kingdom's oil policy after recent production cuts helped push oil prices higher and increase global cost pressures. Oil prices rose despite positive news from Chevron, which resumed full production at a liquefied natural gas export facility in Australia
In contrast to the ECB's confusing positioning the previous week, we expect the Fed to push back on investors' dovish hopes and instead warn of increasingly stubborn inflation. However, we do not expect a rate hike on Wednesday, as the Fed will likely want to wait for more data in the coming weeks. The dot plot could suggest that Fed members are pushing rate cuts into the distant future – which could create significant headwinds for equities, especially interest rate-sensitive growth stocks.
We see a slightly weaker USD – but this appears to be temporary. Expectations of prolonged high interest rates, rising oil prices and the resilience of the US economy will continue to support the USD.
The shift from growth stocks to more defensive stocks is likely to intensify this week – although we expect overall headwinds for equities as expectations rise that central banks will no longer ease monetary policy due to high cost/price pressures. Energy will outperform (again) given rising oil prices – we found a good entry point on Friday.
👁 ROB'S MARKET OVERVIEW:
September 18, 2023
🇺🇸 US Markets ➡️/↘️
Cyclical Stocks ➡️/↘️
Tech/Growth Stocks ➡️/↘️ (chip stocks ↘️)
Financial Stocks ➡️/↘️
Defensive Stocks ➡️/↗️
Energy Stocks ↗️
Materials Stocks ➡️/↗️
USD ➡️/↗️ (most sideways but remains bullish)
AUD, CHF, JPY ➡️
EUR ➡️/↘️ (EUR stabilized but remains bearish)
⚒ Commodity Markets ↕️/↗️
Oil prices ➡️/↗️ (Oil prices remain bullish)
Natural Gas prices ↕️
Metal prices ↕️/↗️ (on more China optimism)
Precious Metal prices ➡️/↘️ (gold under pressure from rising yields)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)