The week ahead will be a busy one kicking off with the US Federal Reserve conclusion of its two-day meeting on Wednesday. The markets are pricing in a 75-bps rate hike with 9% of participants predicting a 100-bps hike(Bloomberg). All eyes will be on Chair Jerome Powell during the Fed Press Conference to ascertain how hawkish a stance the Fed will take amidst concerns about slowing growth. We can also expect earnings guidance from major companies including Microsoft, Alphabet, Meta Platforms, Visa and McDonalds. Concerns have grown in response to the Fed’s hikes with the US housing market showing signs of slowing down, tech companies curbing hiring and unemployment claims rising. Bank of Singapore forecasts the US GDP to expand by 1.8 in 2022 and 1.4% in 2023 compared to 5.7% in 2021.
Europe markets saw some relief last week, as Russia resumed gas supplies. The European Central Bank raised its interest rate by 50 bps – larger than the 25 bps which was expected by the markets, effectively ending an era of negative interest rates for the region. Mario Draghi’s official resignation last week spells trouble for the Italian Economy and the survivability of the Euro. As inflation climbs in Europe, the ECB will need to raise rates and doing so will hike Italy’s debt and risk the sustainability of Italy’s finances.
Commodities, FX and Bonds
Growing concerns on slowing economic growth following the Fed’s upcoming meeting on raising interest rates have led oil futures to fall as traders worry about demand. The falling prices are also prompted by growing number of cases across Asian countries (Market Watch). Gold prices will be more range bound with the Fed rate hike limiting its rally and the concerns on recessions and standstill on the Russian Ukraine crisis limiting the downside. The US dollar Index is expected to remain strong Q3-2022, with JPY and GBP expected to still fall further. CHF would strengthen as the Swiss National Bank turns hawkish (Bank of Singapore, Bloomberg Markets). Fixed Income assets would be negatively affected if the Fed decides to take a more hawkish stance and a higher path for treasury yields.
Please find full weekly note below: