FED's rate hike looms over

Today's focal point rests on the Federal Reserve's (FED) highly anticipated Federal Open Market Committee (FOMC) meeting, which is widely expected to increase interest rates by 25 basis points. This decision would mark the 11th rate hike since inflation started to go rampant in the United States as a result of unprecedented quantitative easing following the outbreak of the Covid-19 pandemic, when the FED decided to nearly double its balance sheet in a matter of months, causing inflation to spike above 9% in June 2022. However, the consistent efforts of central bankers to fight inflation have brought down the inflation rate to merely 3% last month. That is a huge improvement, which puts the latest inflation print only 1% away from the FED’s desired target of 2%. Therefore, now is an unlikely time for the FED to stop and risk losing credibility in front of the entire world. Consequently, that will unleash more pressure on the U.S. economy, which has shown signs of contraction in the manufacturing sector for most of 2023 (only in April 2023, the S&P Global US Manufacturing PMI printed above 50 points). As a result, the chances of something snapping in the economy will continue to grow.

Illustration 1.01

Illustration 1.01 displays the daily chart of VIX, which can be seen making higher lows since 22nd June 2023.

Technical analysis gauge
Daily time frame = Bullish
Weekly time frame = Bullish
*The gauge does not necessarily indicate where the market will head. Instead, it reflects the constellation of RSI, MACD, Stochastic, DM+-, ADX, and moving averages.

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DISCLAIMER: This analysis is not intended to encourage any buying or selling of any particular securities. Furthermore, it should not be a basis for taking any trade action by an individual investor. Therefore, your own due diligence is highly advised before entering a trade.

Commentaire:

On the subject of earnings, we saw that in the first quarter of 2023, the corporate earnings came in better than we initially expected. In addition to that, we saw that there were a lot of differences in the results of various companies across the same sectors. For example, major banks reported great results, while small regional banks showed the opposite. Now, we are seeing the same trend in more sectors, where big and well-established names are doing relatively well while their smaller competitors are having a harder time keeping up with sticky inflation and growing debt costs. We would say that better-than-expected results of big companies increase the odds of the “soft landing,” but we are still not out of the woods. While we might see the market continue to grind higher and perhaps even reach new all-time highs, higher interest rates for longer mean more burden for regular people and companies. Thus, we will continue to monitor unemployment, spending, manufacturing, and services in the next few months.