September 22, 2022

“As much anticipated, the Federal Reserve raised rates by 75bps yesterday, marking the third consecutive 75bps rate hike from the US central bank. A further aggressive path of rate hikes is widely expected in the next few months as Powell struck a hawkish tone at the press conference on Wednesday afternoon.”

Tim Hallinan – Trading Director

Main Headlines

Jay Powell refused to rule out a recession in the world’s largest economy as the Federal Reserve implemented a third consecutive 0.75 percentage point rate rise and published a much gloomier set of projections. Powell’s commentary came as the Federal Open Market Committee lifted its benchmark interest rate to a target range of 3 per cent to 3.25 per cent on Wednesday and signalled an intention to keep monetary policy tight as it fights soaring inflation. “No one knows whether this process will lead to a recession or if so, how significant that recession would be,” Powell said in response to a question about whether higher rates would hurt the economy.

UK employers paying the voluntary “living wage” have been urged to deliver an early increase of more than 10 per cent so that their lowest-earning workers can keep pace with soaring prices. The Living Wage Foundation said this morning that it was increasing its national living wage rate from £9.90 to £10.90 an hour, the sharpest rise in its 11-year history. Meanwhile, the London rate, which reflects the higher costs of living in the capital, will rise from £11.05 to £11.95 an hour. The charity recalculates the rate annually based on what people need to live on but brought forward this year’s change by two months because of the cost-of-living crisis.

GBP

Sterling is well bid against most major currencies overnight. Liz Truss wants to settle the post-Brexit row over Northern Ireland before the 25th anniversary of the Good Friday peace deal next Easter, as the UK prime minister seeks to calm tensions with US president Joe Biden on the issue. Sir Keir Starmer is facing a wave of pressure from within the Labour party to back electoral reform for UK general elections. Truss has left open the door to joining a new European grouping proposed by France’s president Emmanuel Macron, intended to bolster regional co-operation in the face of Russian aggression.

EUR

Euro is stronger against the dollar and weaker against sterling this morning. Credit Suisse has drawn up plans to split its investment bank in three and resurrect a “bad bank” holding pen for risky assets, as the Swiss lender attempts to emerge from three years of scandals. Ukrainian president Zelenskyy said a stalemate in the war with Russia was “not an option for us” as he once more appealed for western military support to restore his country’s territorial integrity. Hungarian Prime Minister Viktor Orban told his ruling Fidesz party that sanctions against Russia imposed by the European Union should be scrapped.

USD

The dollar is weaker than most major currencies in the early morning trade. Executives from JPMorgan Chase, Bank of America and Citigroup have pledged to comply with any demand from the US government to pull out of China should Beijing attack Taiwan. They were speaking in response to a question from Blaine Luetkemeyer about whether they were prepared to pull their investments out of China in the event of a military attack on Taiwan. John Kerry calls for reform of global financial bodies over climate change that the US Climate envoy refused to express his opinion on whether Trump appointee David Malpass should be removed from overseeing the World Bank.

Markets

Share market declines deepened amid diminishing odds of a soft economic landing after the Federal Reserve hiked interest rates by 75 basis points and signalled further aggressive tightening. The Stoxx 600 tumbled 1.4% at the open, set for the lowest level since July 5, following losses in China, Japan and South Korea. Contracts on the S&P 500 slipped 0.7%, pointing to more declines after the benchmark’s slide Wednesday took it more than 20% below the record high in January. Treasury two-year yields rose further above 4% to trade at the highest since 2007 as investors positioned for further rate hikes in the US. A dollar index traded near a record high.

Main Economic Data/Central Banks/Government (All Times CET)

8:45 a.m.: France Sept. manufacturing, business confidence
9:00 a.m.: Riksbank’s Ohlsson speaks
9:00 a.m.: Philippine rates decision
9:20 a.m.: Indonesian rates decision
9:30 a.m.: SNB rates decision
10:00 a.m.: ECB publishes economic bulletin
10:00 a.m.: Norges Bank rates decision
1:00 p.m.: BOE rates decision
1:00 p.m.: Turkey rates decision
2:30 p.m.: US 2Q current account, weekly initial jobless claims
4:00 p.m.: US Aug. leading index
4:00 p.m.: Euro-area Sept. consumer confidence
5:00 p.m.: BOE’s Tenreyro speaks
6:30 p.m.: ECB’s Schnabel speaks
Janet Yellen addresses the Atlantic Festival in Washington
UN Security Council holds meeting on Ukraine

Corporate Events

Earnings include Costco, Accenture, FedEx, Factset, Darden Restaurants, JD Sports

To learn more about Ballinger & Co., please visit our website or our LinkedIn page.