UK’s GDP Data Shakes Markets
European stock markets are focused on the fresh upbeat data set, which is out of the UK, while traders are still digesting fully the economic numbers released yesterday. Today’s UK GDP data shows that the UK’s economy is resilient, and the gloom and doom scenario that has been talked about a lot about the UK is unlikely to take place.
Traders now question their thinking that the UK’s economy will suffer two years of recession, which was touted by policymakers in the UK. The bottom line is that the GDP number has brought some hope for the UK’s economy, but at the same time, the odds are stronger for the BOE to continue to paddle for the medal and hike the interest rate further in their next interest rate meeting.
Speculators should keep one thing in mind: the path of the interest rate hike in the UK has been extremely steep, and now the time has come when we are going to see a significant drop in the UK’s inflation data as the energy crisis eases off in the UK and oil prices have dropped as well. However, Brexit-related issues are still very much anchored in place, and it is something that traders must keep in mind before jumping the gun.
US stock futures
US futures are trading with caution today as the most important event of the week is going to take place later today. The big question for investors and traders is whether there will be a surprise for them in this event, and if there is, we are highly likely to see a significant knee-jerk reaction in the market. At 7 p.m. eastern time, the Fed will announce their monetary policy, and there has been plenty of speculation about what the Fed will do at this meeting. For us, the most important thing that matters is the Fed’s reputation, which has already been tarnished to a large extent, and the question is whether they are going to allow that to happen again.
FOMC and CPI: All Eyes On Jerome Powell
Yesterday’s US CPI reading laid the foundation for no action from the Fed today in terms of an interest rate hike. Traders would like to see the Fed take the summer off and sit on the beach. They have been increasing the interest rate very aggressively, and the fruit of their labour is clearly showing in the inflation data, which has dropped from a peak of 9.1% to a 4% handle. Yes, it is true that the number is still quite far from the Fed’s target rate of 2%, but what matters is that the number has come down significantly from its peak and is moving in the right direction.
We believe the fear the Fed has in terms of the inflation number is that they think it is going to be more difficult to take the number down from here due to the sticky nature of inflation. They believe that they need to chop more wood before they can take some time off. However, one important factor to highlight here is the fact that fuel prices have come down; for instance, crude oil prices are no longer trading above the $80 price mark and are moving faster to a pre-Covid price level. However, if we see a potential increase in Chinese demand—which the PBOC is trying in its latest move—fuel prices could pick up steam and derail some of the hard work done by the Fed. Hence, the Chairman may actually announce one more interest rate hike, go against all the odds, and use the statement as an opportunity to calm the market’s nerves for any potential interest rate hike.
Nonetheless, one thing is pretty clear: the Fed’s terminal rate is at its near peak level, and the path of least resistance from here on is more than likely to be on the downside.
Economic Docket Has US PPI On It
On the economic docket side, the number that will matter for the Fed and traders is the US PPI, and it is widely anticipated that the number is likely to show that the time has come for the Fed to take some rest in terms of its interest rate hike.
Bitcoin Prices May Show Some Improvement
The crypto currency asset, Bitcoin, continues to hold its ground against the massive bearish battle that has been put on by the BTC bears. Traders are now focused on the Fed’s next policy move, and they believe that the price could experience some relief rally as the dollar index may take a nose dive as the Fed leaves the interest rate where it is. The fact is that if we see one or more inflation readings like yesterday, the dollar index is more likely to crash, which could benefit the BTC price. In addition, traders are also keeping a close eye on the BTC’s correlation with riskier assets, and this is because if the Fed pauses interest rates, traders are likely to become bolder in backing more risk, which should help the BTC price.
