Latest world economic news: what’s in store for the market after Powell’s speech?
Latest world economic news: after U.S. Federal Reserve Chairman Jerome Powell stated clearly and precisely at a central bank meeting in Jackson Hole last Friday that he would use all available tools to curb inflation, European stock indexes such as the Ibex 35, CAC 40, DAX went into the red zone following a sharp drop on Wall Street and the market in Asia.
That the priority is given to fighting inflation, as noted by Link Securities, says Powell’s statement: The U.S. interest rate will continue to rise until it reaches a level where the Fed sees inflation going down, and the rate will remain at that level for some time, despite the damage to economic growth and the labor market.
World economic news now — what to expect from Powell’s speech?
As for a rate hike in September, it will all depend on data coming out in the coming weeks, though Powell is not ruling out another unusually large rate hike. The rate barometer suggests a 67% chance that the Fed will raise rates by 75 basis points in September.
Business activity (PMI) data show that orders are falling and consumption continues to decline. Corporate earnings and employment reports will continue to show the effects of a rate hike. As long as employment is high, it forces the Fed to risk sacrificing economic growth. As growth worsens, however, the market will begin to discount changes in monetary policy.
As the experts at Renta 4 note, the rate will continue to rise, probably from 2.25%-2.50% today to a ceiling of 3.75%-4% and will remain at these levels longer than expected, as the Fed is willing to sacrifice growth and employment in favor of the ability to control prices. The decline in inflation in July has not been enough for it to adopt a more dovish course.
There will also be a parallel balance sheet contraction (-$95 billion this week versus -$47.5 billion previously), which will increase pressure on bonds, as noted by Bankinter (BME:BKT).
Earlier, we reported that Germany’s leading consumer confidence index hit an all-time low.
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Investors gravitate toward bear market after Fed decision
The consensus among investors is that the U.S. Federal Reserve will raise rates again before the end of the year and will not loosen its monetary policy until 2024, which is a bearish outlook for the stock market. So it’s important to be prepared for a drop in the S&P 500 and other indices.
That’s the prevailing view of about 350 respondents to the Instant MLIV Pulse survey after Wednesday’s Federal Open Market Committee meeting.
The findings contrast with the interest rate swap market, which is still struggling to gauge a rate cut this year. More than 70% of MLIV Pulse respondents said the Fed is not done raising rates yet. More than half said they expect the central bank to wait with its policy easing until next year.
The survey results are in line with Fed officials, but go against traders who estimated this year’s rate cut has led to lower Treasury yields.
Swap markets expect the Fed rate to peak at around 4.95% in May and then fall to about 4.2% in December.
Earlier we reported that the U.S. Department of Justice has begun investigating the collapse of Silicon Valley Bank.
Startups under threat worldwide after Silicon Valley Bank collapse
High-tech startups have been hit. Companies around the world are facing a fight for survival after the collapse of a major US investment bank, Silicon Valley Bank (SVB). There was a “huge disruption” in the industry globally, Bloomberg reported, citing market participants. The entire stock market, and the S&P 500 in particular, plummeted.
Startups under threat
The bankruptcy of the lending institution, in particular, affected the co-founder of startup Birdly Inc. Quang Hoang. The entrepreneur invested about $10 million in SVB and is still unable to repay the money four days after the bank was shut down by the California Department of Financial Protection and Innovation. However, the entrepreneur is far from the only one who has faced similar problems, the article specifies.
“Hoang was one of thousands of founders around the world this week trying to track down their money after days of chaos and who are completely rethinking the way they run their own businesses. Startups from Silicon Valley to London to Tel Aviv to tech hubs across Africa have depended on SVB as a one-stop store for everything from storing their fortunes to personal mortgages,” the story says.
Now investors and technology companies are predicting a complicated financial future for themselves, even if the bankrupt bank begins to attract deposits from customers under a new name. Many market participants faced a “financial payback” for their overreliance on the credit institution’s risky investment assets, the memo said.
On March 11, the California Department of Financial Protection and Innovation closed Silicon Valley Bank, a large investment bank based in Santa Clara County. All insured deposits from SVB were transferred to Deposit Insurance National Bank of Santa Clara. Depositors were expected to have access to their accounts by March 13.
Earlier we reported that the U.S. Department of Justice has begun an investigation into the circumstances of the collapse of Silicon Valley Bank.
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