Posted Jan 10, 2023, 5:51 PMUpdated Jan 11, 2023, 6:59 PM
“Don’t fight the Fed”, they used to say. However, this is what investors have been doing since the beginning of this year 2023. Central bankers may take turns repeating that the terminal key rates in the United States will be above 5%, nothing helps, the Expectations on Fed Funds, weighted by their implied probabilities, are expected by the Stock Exchange to peak at 4.955% in June, before being lowered.
The financial markets do not believe that key rates will exceed the 5% threshold. The peak is expected in June, at 4.955%, according to the latest expectations calculated from positions on Fed Funds futures.Bloomberg
This is absolutely not the speech held yesterday by the president of the Atlanta Fed, Raphael Bostic. “He indicated that the Fed was committed to raising interest rates in a ‘range of 5 to 5.25%’ and to maintain them until 2024 in order to combat excessive demand in the economy”, summarizes Jim Reid, strategist at Deutsche Bank, which did not appreciate Wall Street, where the Dow Jones and S&P 500 indices ended up turning downward in the wake of these comments. Raphael Bostic is, on the dove/hawk scale of the Fed, one of the members most in favor of an accommodative monetary policy, unlike, for example, Neel Kashkari, of the Minneapolis antenna, who, the week last, said to see the rates of the Fed peak at 5.4%. If inflation slows in the world’s largest economy, it is three times higher than the target.
This Tuesday, while the American markets are moving towards equilibrium, the Bedroom 40 ends the session down 0.55% to 6,869.14 points.
San Francisco Fed President Mary Daly said yesterday that she expected the federal funds rate to rise above 5%, but that the final level would depend on upcoming inflation data. The US consumer price index for the month of December will be published on Thursday, this is the big economic meeting of this week. These figures have the power to change the current scenario of the stock market, which expects the Federal Reserve to lower the pace of its rate hikes by one more notch, this time to 25 basis points as of the next verdict of February 1st.
Neither Mary Daly nor Raphael Bostic are voting members of the world’s most powerful central bank this year, but their statements are something of a window into the current mindset of the monetary policy committee. .
The two spoke on the eve of an intervention by Jerome Powell, the chief central banker of the United States, who spoke at 3 p.m. today at a conference in Stockholm on the independence of central banks. He remained silent on the Fed’s rate strategy and did not mention the economic situation in the United States either.
The World Bank in turn more pessimistic
Today, the World Bank revised its economic forecasts downwards. It is only targeting growth of 1.7% worldwide this year, almost half as much as in June, and warns of the risk of a global recession. In 2024, growth is expected at 2.7%. Last week, the International Monetary Fund “warned that a third of the global economy will be in recession this year”we find within the management company Fidelity which, in its latest editorial, calls on the “Patron saint of the economy and the markets, make the recession brief. Deliver us from inflation and monetary orthodoxy. Show us the way to return and keep us away from risk and Elon Musk. »
Hope is resisting on the stock market since the equity markets have started the year with a bang. The Cac 40 (-9.5% in 2022) rebounded 6% last week. More generally, at European level, the Stoxx 600 index of the largest stocks on the Old Continent (-0.59% today) gained nearly 5% over the first five days of 2023. “We achieved the performance we expected over the year in just one week,” Frederic Dodard, head of investment at State Street Global Advisors, pointed out to us.
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Yesterday, the Parisian index closed above 6,920 points for the first time since February, at its highest for almost a year. Since the low point at the end of September, the Cac 40 has therefore recovered more than 20%. JPMorgan today recommended taking profits on European stocks. “The ECB will probably continue to focus on inflation and it is unlikely to stop until the key rates are sufficiently restrictive, fears the research division of the American bank. This should weigh on European stocks, which are trading near their highs after rallying more than 20%. We recommend taking profits on European equities as recent supports are factored in and focus should be on weakening earnings. »
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This week, Friday, the banks Bank of America, Citigroup, JPMorgan and Wells Fargo will publish their 2022 accounts. On Thursday, the Stock Exchange will monitor, to take the pulse of a technology sector that has been battered on the markets for months, the results of the Taiwanese TSMC , Apple’s leading chip supplier. “Earnings growth is essential to support the tech sector”we recall at State Strate Global Advisors.