Events to Watch
On Wednesday, all eyes will be on the Federal Reserve. The market expects a move of 75 basis points, but a 100-point move can’t be ruled out following the hot August CPI data. The revised predictions will also include new expectations that extend to 2025.
The next day, rate increases of at least 50 basis points are anticipated from the Bank of England, the Swiss National Bank, and the Norges Bank in Europe. Egypt and South Africa are also potential players. On Tuesday, market participants anticipate that the Riksbank will increase rates by 75 basis points.
The BOJ may keep its monetary policy unchanged in Asia while it waits for higher wage growth. It presumes that policymakers will keep the yield curve at its current levels.
Geopolitics
Ukraine’s armed forces have alleged that certain Russian battalions lost as much as 90 per cent of their men in the recent withdrawal from Kharkiv.
This week, the United Kingdom claims Russia’s attacks on civilian infrastructure have risen. President Joe Biden has reportedly informed Chinese President Xi Jinping that it would be a “gigantic error” to break sanctions on Russia and has threatened Vladimir Putin with a “consequential” U.S. response if the Kremlin utilises nuclear or chemical weapons.
Sentiment
After raising its expectation for Fed rise projections, Goldman lowered its US GDP estimate for 2023 to 1.1% from 1.5%. The path of increasing interest rates and recent tightening in financial conditions suggest a slightly weaker picture for GDP and employment next year. The bank raised its forecasts for the current and next year’s unemployment rates from 3.7% to 4.1%.
Markets
The S&P 500 index plummeted over 5% last week, its weakest week since June 17, while the rate-sensitive 2-year Treasury yield finished at 3.87%. The market weakness stems from expectations for a significant interest rate hike by the Federal Reserve on Wednesday and concerns that the Fed’s aggressive tightening to combat inflation may precipitate a recession.
Investors may also suffer volatility due to policy decisions made this week by the Bank of England, the Bank of Japan, and several other central banks. On Friday, the British pound fell to its lowest level against the dollar since 1985, while the yen remains under pressure, albeit it has backed off from just below the crucial 145 level. The greenback’s value remained stable.
Gold
Monday’s decline in gold prices reflected investors’ anticipation of strong rate rises by major central banks this week, particularly the U.S. Federal Reserve, to combat excessive inflation.
It’s probable that the level at $1,600 will be a key one for traders to watch in the days running up to the FOMC meeting.
On September 20, the Federal Open Market Committee of the Federal Reserve System of the United States will begin a two-day meeting to discuss interest rates, with a decision likely the day after. The 75-basis-point rate boost expected from the Federal Reserve is already included in market prices.
Oil
Fears of a worldwide recession that might curb fuel consumption were countered by a lower currency and supply worries ahead of the European Union’s ban on Russian oil in December, sending oil prices up in early Asian trading on Monday.
As the world’s second-largest energy user, China’s loosening of Covid-19 limitations in Chengdu, a southern metropolis of over 21 million people, has calmed demand worries. After Beijing announced new limits, China’s exports of gasoline and diesel also increased, helping to reduce the country’s excessive domestic stockpiles.