Raise or pause is the question today. Will the U.S. Federal Reserve raise its key interest rate by another 25 basis points or will it hold off for now while the world catches its breath after two turbulent weeks in the global banking sector? Money markets are currently expecting another small rate hike, especially as markets have calmed down after several extraordinary measures by major banks and regulators to restore confidence in the financial system. We expected markets to calm down, but most analysts are still warning that more headwinds are waiting ahead.
However, less than three weeks ago, markets were certain that the Fed would accelerate monetary tightening measures again after hot inflation data. I also believe that the Fed will continue its rate hikes (25 basis points) but will mainly try to further calm the markets, which could be interpreted by investors that the Fed is nearing the end of its tightening campaign and will pivot later this year (possibly as early as Q3).
Volatility will be contained now, but I expect overall risk sentiment to remain on the positive side. It will be no easy task for Fed Chair Powell to balance inflation with the health of the banking sector, but I think the Fed is aware that markets are more concerned about the health of the banking sector right now, so he will be careful not to add to the worries by pointing to further tightening in financial conditions.
The ECB still seems more focused on lowering inflation, which will further support the normalization of the EUR/USD exchange rate. Overall, I think the period of very strong USD is over and we will also see a weakening of the dollar against other major currencies (from still very high levels) in the coming weeks.
The complexity facing global monetary policy makers remains high, which was also underlined by the data from the UK, which showed that inflation in the UK unexpectedly accelerated in February, exceeding all economists' expectations. The GBP rose in response as the Bank of England remains under pressure to control the still very high inflation in the UK. The BoE will decide on interest rates tomorrow.
There were slight countermovements in the other markets: Oil prices fell after recent gains, while gold prices stabilized and narrowed their losses. The AUD is the top-performer under the major currencies, recovering from yesterdays sharp losses (just as we expected).
I believe that the Fed and Fed Chairman Jerome Powell will be successful in further calming down nerves which means that the current rally can continue.
👁 ROB'S MARKET OVERVIEW:
March 22 – 2023
🇺🇸 US Markets ➡️/↗️ (flat; then benefiting from Fed rate decision)
Cyclical Stocks ➡️/↗️
Tech/Growth Stocks ➡️/↗️
Financial Stocks ➡️/↗️
Defensive Stocks ➡️
Energy Stocks ➡️/↗️
AUD ↗️ (rebounding from sharp losses)
USD ➡️/↘️ (flat then likely lower after dovish Fed comments)
CAD, JPY, CHF ➡️/↘️
⚒ Commodity Markets ↕️
Oil prices ➡️/↘️
Natural Gas prices ↘️
Metal prices ➡️/↘️
Precious Metal prices ➡️ (after losses, downside limited)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)
Yours, Robert 🇺🇸🏦❌🤷♂️📈