💡Quote of the week
“The Federal Reserve is most likely done raising interest rates this cycle. It just wants everyone to believe otherwise.” Robert Burgess, Bloomberg Opinion
Investment news
🇺🇸 🏦 The Fed slows rate hikes. The Federal Reserve raised its benchmark interest rate by 0.25% to a range of 4.5% to 4.75%, a smaller increase compared to the 0.5% hike in December. But Fed Chair Jerome Powell said there’s more work to do. (Bloomberg)
Powell stated that the Federal Open Market Committee expects to make "a couple" more interest-rate increases before putting their tightening campaign on hold, but acknowledged that inflation has started to ease.
The Fed also stated that inflation "has eased somewhat but remains elevated," suggesting policymakers are growing more confident that price pressures have peaked.
🇪🇺 🏦 The EBC raises rates. The European Central Bank (ECB) has raised interest rates by 0.5%, signaling at least one more hike of the same magnitude next month. (Reuters)
Despite the ECB's move, financial markets interpreted the rate hike as suggesting the tightening cycle might end soon, as seen in the U.S. after the Federal Reserve's statement.
The ECB has been increasing rates at a record pace to combat rising prices caused by factors such as the COVID-19 pandemic and an energy crisis that followed Russia's invasion of Ukraine.
🇬🇧 🏦 The Bank of England raises interest rates, hints at possible peak. The Bank of England raised the U.K. interest rates by 0.5 percentage points to 4%, in its tenth consecutive rise. However, the Bank indicated that it could be the last increase for a while. (Sky News)
The Bank said it would only raise the rates further "if there were to be evidence of more persistent [inflationary] pressures."
📈 U.S. stocks jump after Fed's slower rate rise. The slowdown in the pace of interest rate hikes reflects the growing confidence that inflation is on a downward trajectory. The Wall Street's S&P 500 index and the tech-heavy Nasdaq Composite rose 1.1% and 2%, respectively, after Fed Chair Jerome Powell spoke to reporters. (FT)
But despite the encouraging recent data, Powell stressed the need for further rate rises to bring inflation firmly under control.
💵 U.S. dollar strength nears the end. The U.S. dollar continued to decline as the Federal Reserve opted for a smaller interest rate hike of 25 basis points. (CNBC)
The DXY, the U.S. dollar index, fell 0.3% during Asia's morning session to 100.91, near its lowest levels seen since April 2022. The decline in the dollar has helped to strengthen other currencies in the region, as well as gold.
⭐ Gold sell-off. The gold price steadied on Friday after a sharp sell-off in the previous session caused by remarks from global central banks about rate hikes.
Gold bullion has gained about $300 since November on expectations of softer rate hikes from the U.S. central bank.
📸 Image of the week
Opinion
🏦 The Fed Pirouette. While the Fed's statement suggests that further increases may be necessary to curb inflation, many market participants believe that the central bank is done raising rates. (Bloomberg Opinion)
The swaps market* predicts a peak policy rate of 5%, lower than the 5.25% the Fed has indicated, as it believes that rates are already at a level that will achieve the Fed's goal of reducing inflation to 2%.
However, the Fed may continue to give a hawkish message to keep markets guessing in order to maintain financial stability, Bloomberg’s Robert Burgess writes.
*a financial market in which organizations exchange loan agreements.
What else is happening
🇷🇺 🇺🇦 Russia to press assault in Eastern Ukraine as Kyiv waits for more weapons. The situation in Eastern Ukraine is becoming increasingly dire as the country's military is faced with as many as 300,000 Russian troops along the front lines. Despite advanced weapons already sent from allies, it is not enough for a substantial recovery of territory before Russia's planned offensive. (Bloomberg)
The U.S. is advising Ukrainian forces to play for time to allow more weaponry to arrive, but this could mean that the conflict lasts into 2024.
The prospect of a war that drags on for years could test the resolve of Ukraine's allies and potentially force President Zelenskiy's hand in future negotiations.
🇺🇸 🇨🇳 Tense U.S.-China relations ahead of U.S. Secretary of State Antony Blinken’s visit to Beijing next week. Despite promises to improve relations, tensions between the U.S. and China have only escalated. The U.S. has been implementing measures to limit China's access to sensitive semiconductor technology, while China has shown a willingness to violate Western sanctions against Iran and deepen its ties with Russia. (Bloomberg)
This creates a tense environment for Blinken's visit to Beijing, the first high-level U.S. encounter there since the start of the pandemic.
The visit is mainly symbolic and is an effort to keep channels of communication open, but it is uncertain if the relationship between the two countries will ever return to normalcy.
And finally…
🕰️ "Doomsday Clock" ticks closer to midnight as threats mount. The "Doomsday Clock," created by the Bulletin of the Atomic Scientists, has moved its "time" to 90 seconds to midnight, the closest it has ever been to the end of the world. Midnight on this clock marks the theoretical point of annihilation, and the hands of the clock are moved based on scientists' assessment of existential threats. (Reuters)
The new time reflects a world in which threats of nuclear war, disease, and climate volatility have been exacerbated by Russia's invasion of Ukraine, putting humanity at greater risk of destruction.
See you next week!
