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With the market on edge after hawkish rhetoric from the Fed, the stage is set for the Bank of England and the European Central Bank to deliver 50 basis point interest rate hikes and chart their path in the fight against irrepressible inflation even as their economies teeter towards recession.
The U.S. central bank on Wednesday raised interest rates by half a percentage point after delivering four consecutive 75 bps hikes, but signalled more increases in borrowing costs by the end of 2023.
“I wish there were a completely painless way to restore price stability,” Fed Chair Jerome Powell said. “There isn’t, and this is the best we can do.”
Asian stocks slid, while the dollar swayed and U.S. Treasuries remained supported. With a looming recession on investors’ minds there is a hint of scepticism on whether the Fed will follow through on rate hikes in the face of slowing growth. At about 4.9%, markets price a lower peak in the funds rate than the 5.1% median projection from Fed officials.
And so the focus switches to the BoE and ECB and what the central banks outline on Thursday. Norges Bank and the Swiss National Bank are also expected to hike rates, with economists forecasting a 25 bp hike in Norway and a 50 bp hike in Switzerland.
In China, a slew of economic data for November showed worsening conditions due to strict COVID 19-related curbs, and while Beijing has since ditched some anti-virus restrictions, the result has been a surge in cases, highlighting the dilemma facing the world’s second biggest economy.
The country’s central bank ramped up cash injections into the banking system and held interest rates unchanged on medium-term policy loans to keep liquidity conditions ample.
In the corporate world, Elon Musk, CEO of Tesla (NASDAQ:TSLA) and Twitter owner, sold $3.58 billion worth of the EV maker’s shares this week. Musk, who recently lost his title as the world’s richest person, faces investor concerns that his purchase of the social media firm could divert his time away from Tesla, whose shares are down 55% in 2022.
Key developments that could influence markets on Thursday:
Economic events: BoE, ECB, SNB and Norges Bank policy meetings
