Swissquote: No expectation of US rate hike in September

July 21, 2023

Only small chance that there could be another hike in November. Fed might start cutting rates in January or March.

‘Stocks and bonds in the US fell yesterday. Stocks fell, sent down by a nearly 10% plunge in Tesla and more than a 8% dive in Netflix’, reports Ipek Ozkardeskaya, Senior Analyst at Swissquote Bank, today. ‘Chip stocks fell as well around the world as TSM cut its annual outlook for revenue due to geopolitical tensions and weak global demand, and announced that its Arizona production plant will be delayed due to shortage of qualified labour that could build the plant. TSM shares fell 5% to below $100 a share in NYSE, while Nvidia lost more than 3% as investors started wondering whether the chipmaker will be able to deliver the $11bn revenue estimate that it announced last quarter!’

Bonds fell as well yesterday, ‘as unemployment claims unexpectedly fell in the US. That strengthened the Fed hawks’ hand yesterday on the reasoning that the US jobs market just won’t loosen and challenge the latest expectation where investors and economists, including the ex-Fed Chair Ben Bernanke, think that the Fed’s next week rate hike will also be its last in this tightening cycle due to easing price pressures. There is no expectation of another hike in September, while some 20% predict that there could be another hike in November.’

Will the Fed start cutting rates, in January, or in March?

‘It will depend on inflation, really. The rising geopolitical tensions between Russia and Ukraine in the Black Sea, where Ukraine also said that ships going to Russian ports may be military targets threatens the crop trade. Wheat futures jumped past their 200-DMA yesterday and are up by more than 20% since last week. If that’s not enough, India bans shipments of non-basmati rice to contain domestic prices and rice futures are also upbeat right now.’ ‘And the European natural gas futures gained nearly 4% yesterday. So all these jumps in commodity prices will certainly show up in next inflation figures as the favourable base effect will also gently fade away.’

‘The US dollar index is up from its recent lows but is still at the lowest levels seen this year, the EURUSD is down below the 1.12 mark, on the back of a broadly stronger US dollar, and a lack of consensus. On the one hand, the ECB members said that a 2nd rate hike following the next ECB hike is not guaranteed. On the other hand, the higher-than-expected core inflation and the positive revision in growth figures leave the ECB enough space to stay on a hawkish policy path. We will likely see a rangebound EURUSD between the 1.10-1.12 range into next week’s policy meeting. Gold is upbeat on the back of rising geopolitical tensions as the price of an ounce stands around the $1970 this morning, while the USDJPY tests the 140 mark and the 50-DMA, after inflation in Japan came in higher than last month but softer than the expectations.’