Home Forex Fed Unlikely to Cut Rates in March: Strong Economic Data Changes Investor Sentiment

Fed Unlikely to Cut Rates in March: Strong Economic Data Changes Investor Sentiment

by SuperiorInvest

Investors continue to return to common sense and the latter involves reducing the rate cut expectations that were advanced in recent months. Yesterday, the Federal Reserve’s (Fed) Beige Book survey suggested that resilient consumer spending during the holiday season helped boost the US economy, and another strong rise in US retail sales confirmed that US spending did not slow down at the end of last year. year. On the contrary, the latest data recorded its highest pace in three months. As such, the strong economic data contributed to the idea that, yes, maybe March is too early for the Federal Reserve to announce the first rate cut; There is no apparent reason for the Federal Reserve to rush into rate cuts as soon as March. The Federal Reserve is likely to start cutting in the first half, but March looks overly optimistic given the current strength of economic data. Probability of a March cut fell to around 60% from around 80% at the beginning of the year, yield advanced 25 bps since the start of the week, remains above 4%, is rising, is under new Sales pressure is near peak and volatility is increasing. Given the extent to which Fed doves and market bulls have pushed their rate cut bets in recent months, there is room for a further downward correction in both stock and bond markets, and potential for a further recovery versus most major companies.

Davos vibes

Central bankers, bank CEOs and other influential figures continue to speak in Davos. They continue to reject expectations of interest rate cuts, highlight the need to consider upside risks to inflation due to rising geopolitical tensions, and continue to warn that market optimism over rate cuts may have the opposite impact on rates. type policies. : Too much optimism could delay rate cuts. The president of the European Central Bank (ECB), Christine Lagarde, warned yesterday in Davos that overly optimistic expectations of rate cuts do not help central banks fight inflation, as they loosen financial conditions prematurely. However, she hinted that the ECB will likely cut rates in the summer or summer. And this was the first time we heard the ECB chief consider rate cuts out loud.

The market and central bankers have begun to move closer to each other, but the time lag between when investors price in the first cuts and when central bankers contemplate rate cuts should continue to narrow to find an optimal balance. and that should imply a deeper downward correction in stocks and bonds, and a further recovery in the US dollar.

Markets

They tested the 200-day moving average on the downside yesterday and price bounces could be interesting opportunities to build new shorts targeting the 1.0770/1.08 range. Cable is better bid above the 50-day moving average after a surprise rebound in the UK’s December inflation figures weakened the hands of the Bank of England (BoE) pigeons yesterday. Cable is testing bids of 1.27, however, with limited upside potential, given that Fed rate cut expectations are being trimmed, and when the Fed is in play, expectations for Other central banks must wait their turn to speak. In Japan, the Japanese yen advanced to 148.50, a move that no one saw coming late last year when bets on Bank of Japan (BoJ) normalization began to drive long positions in the Japanese yen. Data released this morning showed that Japan’s basic machinery orders fell 5% in November, calling for support from the Bank of Japan, rather than a rate hike.

Earlier this week, China recorded 5.2% growth over the past year; Not a great achievement, of course, since the 5% rebound after the pandemic crisis did not equal anything better than a meager 2% growth compared to a year without Covid. Industrial production was better than expected in December, while retail sales grew more slowly. Chinese stocks barely reacted to the news of a trillion yuan stimulus earlier this week. The sell-off in the CSI 300 accelerates as the focus remains on developing deflation and worsening the housing crisis. The Australian dollar feels the impact of China’s weakness, weak employment numbers and a stronger US dollar. It sank below the 200-DMA and is preparing to test the 100-DMA at 0.6510 on the downside. AUD/USD outlook moves from neutral to positive; The only thing that could stop the Australian dollar from selling off against the dollar are technical indicators that hint that the pair will soon enter oversold conditions.

In energy, supply is better and US crude oil is testing $73 per barrel (again this morning due to tensions in the Red Sea and OPEC’s forecast that global oil demand will grow by 1.8 million barrels per day next year, outpacing the growth in supplies and keeping the market in deficit. Of course, OPEC’s forecasts must be taken with caution, since they have an interest in the numbers favoring them. But what is real is that the sharp decline in maritime transits through the Red Sea region, which will continue to raise shipping costs, could squeeze energy markets and put a floor on the oil sell-off near the $70 per barrel level.

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