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 Verfasst am: 13. Aug 2022 04:56 Titel: FED DECISION & EUROPEAN GAS WOES UNNERVE MARKETS |
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FED DECISION & EUROPEAN GAS WOES UNNERVE MARKETS
This evening, the US Federal Reserve (Fed) is widely expected to raise its target range by 75 basis points to 2.25%-2.5%. This would be the fourth consecutive rate hike, pushing borrowing costs to the highest level since 2019. Guidance for September’s meeting will be closely monitored.To get more news about GO MARKETS高汇, you can visit wikifx.com official website.
Price pressures remain on the upside and recession risks loom with several forward-looking indicators and corporate results point to economic stress. Given the consumer remains the best proxy indicator for gauging the likelihood of a prolonged stagflationary environment, tumbling consumer confidence and the bigger fall in new home sales of 8.1% from a month earlier exemplify the pain of inflation and higher borrowing costs. If the Fed-engineered slowdown spreads from the housing market to retail sales and business investment, this should drag down not just US spending but also inflation, which is why markets are currently betting the Fed will begin cutting rates by next spring, after taking the Fed funds rate to 3.4% by the end of this year.
The euro was knocked lower once again yesterday following the news that the EU reached a deal to reduce gas consumption by 15% over winter with exemptions for certain member states less dependent on Russian gas. European gas prices have surged 30% in two days.
The voluntary agreement is a pre-emptive move against further reductions in gas flows coming from Russia. However, given current storage levels and Nord Steam 1 only working at 20% capacity, it is unlikely that every member state will be able to reach the EU's target of filling up 80% of gas storage before November. Recession fears and worries about the European gas supply have led investors to seek safety in bonds again, with German 10-year bond yields falling about 50% from their 2014 high reached earlier this year. For now, EUR/USD remains above parity, but the euro is the worst performing major currency this month and money markets appear too hawkish pricing in 100 basis points more of European Central Bank rate hikes by year end.
GBP/EUR may not test the €1.20 handle as easily as some might expect given the dire UK economic situation compounded by higher UK wholesale gas prices as Russia continues to squeeze supply and energy costs are set to almost double when the cap is reviewed again in October.
UK inflation is already at a 40-year high but is expected to surge well above 10% as energy and food costs continue to rise, piling the pain on businesses and consumers. Although UK growth is expected to remain relatively strong this year, inflation is running hotter than in Europe or the US and is expected to take its toll in 2023. Consequently, the UK is set for the slowest 2023 growth amongst the G7 richest economies according to the latest International Monetary Fund (IMF) report published yesterday. |
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