The Federal Open Market Committee (FOMC) of the US Federal Reserve will meet on September 20-21 to consider further FED interest rate increases, which are at their highest level since 2018 at 2.25-2.5%.
Most analysts expect the Fed leadership to take new steps to tighten monetary policy, predicting interest rate increases in September 2022 by 75 basis points to 3-3.25%, following similar decisions in July and June. The key argument in favor of this is high rates of consumer price growth in the U.S. at 8.3% in August, while the head of the Federal Reserve System, Jerome Powell maintained the target inflation rate of 2%.
At the same time, the experts of the Japanese financial corporation Nomura Holdings do not rule out the possibility of raising the discount rate by 100 basis points at once.
“Materializing upward inflation risks are likely to lead to a 100bp Fed rate hike at the September FOMC meeting, against our previous estimate of 75bp,” reads the published Nomura analyst forecast.
An increase of 1 percentage point would increase the interest rate to 3.25-3.5%, which would be the highest value since the financial crisis of 2008.
The Fed previously went for such a one-time rate hike just seven times between 1978 and 1981 as part of measures to combat inflation in the U.S., which exceeded 14% annualized during 1980, according to CFRA Research.
According to market participants, such decisions by the U.S. monetary authorities would adversely affect the U.S. stock market. Such measures could lead to the transition of the U.S. economy into a full-fledged recession. U.S. GDP has already been declining for two quarters in a row: by 0.6% year-over-year (if GDP had been growing at the same rate for four quarters in a row) in the second quarter and by 1.6% in the first quarter.
Earlier we reported that a recession in Europe could occur with an 80% probability next year.
Demand in a market for smartphones in China fell 13.2% in a year, to a decade low – IDC
Demand in the smartphone market in China fell to 285.8 million units last year, according to research firm IDC. On a year-on-year basis, the figure fell 13.2% to below the 300,000 mark for the first time in a decade. The decline in demand was affected by tight restrictions under the “zero-tolerance” policy on COVID-19 and a slowdown in economic growth in the country.
In the fourth quarter, demand for mobile phones in the PRC declined 12.6 percent to 72.9 million handsets.
“The historically low level of supply is forcing smartphone manufacturers to think about how to build a more sustainable business model and a more focused marketing strategy,” says Will Wong, senior research manager at IDC.
As a positive factor, he notes the end of the policy of harsh anti-covids, which “provides the market with a tailwind.” That said, the expert thinks a quick recovery is unlikely, as consumers have been spending more money recently in areas such as leisure and services.
At the end of 2022, vivo maintained its market leadership despite a 25.1% drop in sales. Honor was the only brand in the top 5 to show sales growth (+34.4%), also due to a low comparison base. OPPO shipments were down 28.2%; Apple Inc. (NASDAQ:AAPL) was down 4.4%, and Xiaomi (HK:1810) was down 23.7%.
Earlier, we reported that the outlook for the likelihood of a recession in most markets has declined.
Predicting recession probabilities in most markets declined
Predicting recession probabilities have fallen sharply from the highs of 2022, the JPMorgan Chase & Co (NYSE:JPM) model shows.
In seven of the nine asset classes tracked by the model, from European stocks to investment-grade bonds, current quotes suggest recession chances are below 50%. The value of the S&P 500 suggests traders see a 73 percent chance of an economic downturn in the U.S., up from 98 percent last October, Bloomberg wrote, citing data from the bank.
Do economists predict a recession?
“Most asset classes are showing a gradual reduction in recession risks Thanks to the opening of the Chinese economy, the collapse in gas prices in Europe, and a more pronounced than expected slowdown in U.S. inflation,” said JPMorgan strategist Nikolaos Panikirtzoglu. — The market now sees a much lower likelihood of a recession than in October.”
Meanwhile, his colleague Marko Kolanovic warned that investors may be underestimating the potential pressure that a slowdown in U.S. economic growth could put on stocks in the coming months. At the same time, factors such as a decline in industrial production and retail sales, as well as a rally in the bond market and the Federal Reserve’s promise to keep rates high will play into the bulls’ hands.
Economists, on the contrary, have become more pessimistic-their consensus forecast calls for a 65% chance of a recession versus a 50% chance in October, Bloomberg notes.
Negative signals are also observed in the bond market — the yield on three-month US government bonds exceeds the yield on 10-year securities, indicating that investors are waiting for a slowdown in economic growth in the coming months.
On the other hand, many market participants are hopeful that the world’s central banks will be able to give the economy a soft landing — and it’s precisely because of such hopes that risky assets have rallied in recent weeks.
“I don’t want to say growth will be outstanding, I just think it won’t be a nightmare,” HSBC strategist Max Kettner told Bloomberg. — There are simply no catalysts to a decline and no unpleasant surprises, so the only way is up.”
Earlier we reported that the U.S. Treasury is going to use emergency measures because the national debt is getting closer to the ceiling.
U.S. Treasury starts using emergency measures because of the approach of the state debt to the upper limit of debt obligations
Yesterday, U.S. Treasury Secretary Janet Yellen told Congress that her office had begun using emergency measures because the size of the national debt is approaching the upper limit of debt obligations. These measures will prevent a default in the next few months, notes MarketWatch.
According to the treasury secretary, “it is unlikely that the money and the emergency measures will be exhausted before early June.”
Late last week, Yellen warned in a letter to congressional leaders that the U.S. could reach the national debt ceiling on Jan. 19, and an increase or suspension of the limit is needed to avoid a default.
“Failure to meet the government’s obligations would irreparably harm the U.S. economy, the livelihood of all Americans, and global financial stability,” the document said.
The Debt Limit definition is the statutory limit on the U.S. government’s borrowing to pay its current obligations, including Social Security, Medicare, and military salaries. Currently, this limit is about $31.4 trillion.
Earlier we reported that the Central Bank of China again kept the prime rate at 3.65%.
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