The financial markets await today’s outcome of the Fed meeting with considerable uncertainty, i.e. Governor Jerome Powell’s hints on how the most important central bank should conduct monetary policy in the future.
The Fed will almost certainly not change interest rates after the two-day meeting in September (as it did in July) due to slowing inflation (the Fed funds rate will remain in the range between 5.25 and 5.50 percent), so it will be all the more important what Powell says about future moves. Is he more concerned about recession or inflation? Are we expecting another interest rate hike and when next year could we see a turn of the cycle and the first interest rate cut in this cycle? The Fed’s economic growth forecast will also be important. Expectations that the world’s largest economy will slip into recession this year are not coming true. GDP growth is expected to be quite high in the third quarter, the Fed’s office in Atlanta predicts growth of as much as 4.9%.
Markets in a historically unfavorable periodStock markets have entered a ten-day period of worst returns in history. There is quite a lot of nervousness, as well as surprises. Last Wednesday, Wall Street rallied despite higher-than-expected US inflation (August CPI rose 3.7 percent year-on-year), and on Friday, when no sensitive information was released, stocks (mainly tech) clearly appreciated. On Tuesday, the direction was slightly downward, the leading indices lost about a quarter of a percent. It is interesting that despite the large strike of workers in the American auto industry, the shares of the car giants (GM, Ford) do not lose value.
|this year’s change||value|
|Dow Jones (New York)||+4.1%||34,517 points|
|Nasdaq (New York)||
|Stoxx 600 (Europe)||+7.3%||
|SBITOP (Ljubljana)||+12%||1,171 points|
|dollar index||+1.5%||105.2 points|
|10-year bond (US)||
+40 basis points
This year’s new top on the oil marketOil prices hit a new high since November, with a 159-liter barrel of Brent trading at almost $96 on Tuesday after Azerbaijan launched a military operation in Nagorno-Karabakh. There are more and more analysts who believe that it will be necessary to pay 100 dollars for oil this year. Supply is limited, and the two most important members of the Opec+ cartel, Saudi Arabia and Russia, are determined to stick with reduced production quotas for a total of 1.3 million barrels per day until the end of the year. As a result, the International Energy Agency warns that a shortfall in supply should also be expected in the last quarter of this year.
Another 100 dollars this year?Analysts at Bank of America believe Brent could break above $100 before the end of the year, stressing that concerns about China’s slowing economic growth are not playing a role. If oil were to indeed go above $100, that would add to inflationary pressures, keeping interest rates at high levels longer than expected. This would have a negative impact on economic growth and thus also on the demand for oil, so according to Bank of America, it is not expected that prices would persist above one hundred dollars for a long time.
High oil prices will affect Europe more than the USHigher fuel and heating oil prices are expected again on Tuesday in Slovenia. The chief economist at the OECD warns that the risks in Europe due to high oil prices again (they have risen by 25 percent since May) are much greater than in the USA, since Europe is a large importer of energy products. The OECD has therefore raised the forecast for US economic growth and lowered the forecast for growth in the euro area. They slightly increased the estimate of global GDP growth for this year (from 2.7 to 3.0 percent), but lowered it for 2024, namely from 2.9 to 2.7 percent. Last year, global economic growth was 3.3 percent.