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Top 5 Things to Watch in Markets in the Week Ahead

Published 09/18/2022, 07:21 AM
Updated 09/18/2022, 07:45 AM
© Reuters

By Noreen Burke

Investing.com -- Investors' attention will be squarely focused on the Federal Reserve in the week ahead with policymakers widely expected to deliver a third straight 75-basis-point rate hike on Wednesday. The Fed isn’t the only game in town – central bank policymakers in the U.K., Switzerland and Japan will also meet during the week as the global fight against inflation intensifies. Meanwhile, U.S. stocks look set for another volatile week amid fears that higher interest rates will see the economy run into trouble. Here’s what you need to know to start your week.

  1. Fed decision

Higher-than-expected U.S. inflation numbers for August have cemented expectations for another jumbo rate increase from the Fed at the conclusion of its meeting on Wednesday.

Markets have priced in a 75-basis-point rate increase, but some investors are bracing for a full percentage point hike - a move unthinkable just a short time ago.

Market watchers will be on high alert for how the U.S. central bank views the current pace of monetary tightening, the strength of the economy, and how likely inflation is to persist - as well as signs of how the balance sheet unwind is proceeding.

Some worry the process, in which the Fed cuts its balance sheet by $95 billion per month, could hurt market liquidity and weigh on the economy.

  1. Bank of England

The BoE meets on Thursday after last week’s meeting was delayed by a week for Queen Elizabeth II’s funeral. Policymakers are expected to hike rates by another 50 basis points, which would bring the Bank Rate to 2.25%, although a 75-basis-point hike is still on the table.

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It will be the BoE’s first meeting since the announcement of a government price cap on energy prices, which is expected to see inflation peak lower than it would have done, but the injection of money into consumers’ pockets is likely to keep it high for longer.

On Friday, new Chancellor of the Exchequer Kwasi Kwarteng will deliver a “fiscal event” - his first statement on how he plans to deliver new Prime Minister Liz Truss' pledge to make the U.K. a low tax economy, which risks stoking inflation.

The seemingly opposing directions of monetary and fiscal policy underline the challenges facing the U.K. economy, which has the highest inflation rate among the world's major economies but is also at risk of tipping into a recession.

  1. Global central banks

The Swiss National Bank meets on Thursday with officials expected to deliver a 75-basis-point rate hike, matching the European Central Bank’s recent move even though inflation in the Eurozone is far outstripping Switzerland.

Elsewhere in Europe, Norway’s central bank is expected to hike rates at its meeting on Thursday as inflation continues to exceed forecasts.

The Bank of Japan also meets on Thursday amid speculation that Japanese authorities are close to intervening in the foreign exchange market to support the weak yen, which hit a 24-year low against the dollar earlier this month.

The dollar has been supported by the view that the Fed will keep tightening policy aggressively, while the BoJ sticks to unprecedented easing.

  1. PMI data

The first look at European business activity in September comes on Friday with the release of PMI data from the eurozone and the U.K.

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The eurozone PMI has already spent two months below the 50 level that separates contraction from expansion - a sign the bloc may enter a recession earlier than previously thought as the energy shock and tighter monetary policy bite.

Last Thursday, the World Bank warned that the world’s economy has been slowing sharply, and even a "moderate hit to the global economy over the next year could tip it into recession" as central banks simultaneously hike interest rates to combat persistent inflation.

  1. U.S. equities

U.S. stocks ended in the red on Friday with the S&P 500 and the Nasdaq posting their largest weekly percentage declines since June as inflation concerns, looming interest rate hikes and ominous economic warning signs weighed.

U.S. stocks' volatile run this year shows no signs of abating as stubbornly high inflation data makes it likely the Fed will continue to raise interest rates faster and further than previously expected, adding to chances of a recession.

"While the market is expecting a big bump in the Fed’s rates next week, there is tremendous uncertainty and concern about future rate increases," David Carter, managing director at JPMorgan in New York told Reuters Friday. "The Fed is doing what it needs to do. And after some pain, markets and the economy will heal themselves."

-Reuters contributed to this report

Latest comments

I'm kind of looking forward to the upcoming BEAR TRAP and subsequent SHORT SQUEEZE ;)
Likewise, short and then buy sell quick if FED go with 75
👍🏼
US Congress can impeach Fed Chair.
Math is not your strong suit.
US Congress , not Fed, should set the inflation target. We are not in Era of 2% inflation target but in Era of 4% inflation target.
only an idiot would trust that our government is capable of anything constructive. really?! the congress should control our economy? God help us! 🇺🇸
2% inflation target is for primitive Era. we are in modern Era of 4% inflation target.
this week's stock market; 25% Chace of -2%; 50% chance of +5%; 25% chance of +10%
Do you thing that have a chance of 75% that stock market go up with a 75 point rate increase? Can you explain your idea?
moat likely 50 bps or pause, whichever the case might be. massive stock market rally is highly likely
Apparently the stock market is dependent on free money from the fed. Permanent bail outs = share buybacks. The second interest rates rise and QE finishes the market tanks. Is share price only governed by the actions of the fed?
On the other hand Brazil’s economy is doing great !!
US charts are always red. Tell us something new!
Small businesses were shut down due to how state governments responded to Covid. Then they pass consecutive inflationary spending bills to "save" us. Then sign another inflationary bill that includes 87,000 IRS agents to audit middle class America to make sure everyone pays their "fair share". Oh, but they also gave you $2000 to offset all of this. Welcome to the destruction of the US economy.
Hi
Are we seeing a reverse of bye on the rumor and sell on the news and what’s been happening is we’ve been selling on the rumor?
Buy : orcl sony tqqq oil adobe tell vlo
Its interesting to see this inflation move market
Just trade after us session, Market sentimen more power than fundamental
Doesn't matter how much they raise it they are puasing before going over 4%. They know this unprecedented pace of interest rate hikes is going to have a devastating effect at some point soon. Then its their job and mandate to get us out of recession if it happens
Fed mandate is jobs and price stability, not economic growth.
Gold? Oil?
 Do you take note of US SPR releases?
quite aware of global oil
 SPR means Strategic Petroleum Reserve, not “global oil”. Are you aware of the releases and schedule?
Over mopping of excess liquidity could tip in to recession, Central Banks world over should exercise restraints/caution. Excessive rates will collapse Governments or lead to revolution in some third world countries.
The banks exercised caution, let use this word, for very long time. This contributed mightily  to presently dismal financial situation. Should they double-down on mistaken policies?
High inflation will persist, while the Fed will continue to try catching own tail by making more rate hikes. The government continues amassing more debt, making concerns about the “Fed balance sheet reductions” misplaced to say the least. Hint: the government produces more new debt than Fed removes from the “balance sheet”.
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