Wall Street is forecasting modest declines ahead of further rate hikes.
Wall Street expects moderate losses on Wednesday after mixed sign Tuesday, after meeting a inflation data lower than expected. Investors try to assimilate the CPI, while dismissing the idea that the consumer price index (CPI) of the European Union is falling. Federal Reserve (Fed) will raise interest rates more than expected.
Price developments in the United States continue to moderate, but at a slower pace than that desired by the market. At the same time, Core inflation is proving more resilient than expected.remaining well above the 2% target.
In this scenario, the Fed will continue its monetary tightening. and will increase “its benchmark interest rates by 25 basis points twice more, to bring the average terminal rate to 5.1%. Besides, we see no chance of the Fed starting to cut official rates this year.. This scenario is not exactly what bond and stock markets have been discounting year-to-date, but we don’t think it will come as a real surprise to most investors at this point,” the experts at Link Securities note.
For Craig Erlam, senior market analyst at Oanda, inflation trend is positivebut consider that may be stagnatingwhich will not encourage the Fed to stop raising interest rates.
“The next 25 basis point hike was never really in doubt anyway, but now the markets are pricing in a lot more factors, including another in May and a good chance of another in June. Furthermore, The rate cuts that were scheduled for the end of the year a few weeks ago are no longer on the cards.“, he says.
This Tuesday, after the release of CPI data, several members of the Fed expressed their opinion that interest rates should continue to rise. for a longer period of time in order to combat rising prices.
This central bank “obsession” with bringing inflation down to 2% and avoiding its credibility being called into question “has increased the risk to our base case that the Fed will end its hike cycle, and raised the likelihood of a further hike by 25 basis points at the next FOMC meeting in March. analyzes David Kohl, chief economist at Julius Baer.
ECONOMY AND OTHER MARKETS
This Tuesday, investors will have another important meeting with the report of the European Commission. Retail sales in Januarywhich will allow them to find out whether consumer spending continued to cool at the start of 2023, despite the strength of the labor market. The consensus expects a rebound of 1.8%, against declines in November and December.
“Today’s report is unlikely to confirm the story of a US consumer feeling this pressure,” commented experts at CMC Markets.
In other markets, oil West Texas is down 1.45% ($77.91) and the Brent is down 1.24% ($84.52). On the other hand, the euro depreciated by 0.08% ($1.0726), and the ounce of gold lost 1.08% ($1,844). Furthermore, the U.S. 10-Year Bond Yield rises to 3.73% and the bitcoin is down 0.28% ($22,160).