Fed signals steeper rate path & accepting recession

Global equities, and U.S. equities in particular, came under heavy pressure yesterday after the Fed gave its clearest signal yet that it is willing to accept a recession as a necessary quid pro quo for regaining control over inflation. Central bankers also announced a steeper rate hike path: 1.25 percentage points (125 basis points) before the end of the year and further hikes in early 2023. 

The Fed's strong monetary tightening signal is also putting pressure on other central banks to follow suit. However, the Bank of Japan did not announce any changes to its interest rates and continues to keep bond yields extremely low. However, the Japanese Ministry of Finance announced it would sell USD and buy JPY to stabilize the JPY. This is the first Japanese intervention in the FX market since 1998. I doubt this will stabilize the JPY in the medium term, but it did provide a short-term bounce in the JPY. The Bank of England raised rates by 50 basis points today, but also announced further tightening.

While stocks are again supported by dip buying, I see the Fed preparing or causing a very hard landing for the economy. Even Fed Chairman Powell himself said he expects a sustained period of below trend growth. Even though the markets now have more certainty, I expect times to get tougher and corporate earnings to weaken more than expected.

Equities in Europe have benefited from a weaker currency – but these gains are by no means sustainable. Demand for the USD continues unabated. I expect risk assets (including equities; especially cyclical and tech stocks, which are sensitive to economic growth and interest rates) to suffer even more. The CHF is weakened by the strong USD and Japan's intervention in the FX market.


🇺🇸 US Markets ↕️
(markets remain bearish despite short-term “recovery” due to dip buying).
Cyclical Stocks ↕️
Tech/Growth Stocks ↕️/↘️
Financial stocks ↕️
Energy ↕️

💱 Forex Markets
EUR, USD ➡️/↗️ 
JPY ↕️ (very high volatility; further price gains but JPY remains under pressure)
AUD, CHF ➡️/↘️

⚒ Commodity Markets ↕️
Oil prices ➡️/↗️
Natural Gas prices ➡️
Metal prices ➡️/↘️
Precious Metals ➡️/↘️

⚡️Crypto Market ➡️/↘️

(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)

Yours, Robert 🇺🇸🏦🌪📉📉