FOMC Meeting and Putin’s Reservist Mobilization Overhang an Edgy Day

September 21, 2022

The FOMC announcement at 14:00 EDT will be accompanied by updated macroeconomic forecasts and followed by Chairman Powell’s press conference starting at 14:30 (18:30 GMT). Officials are expected to raise the federal funds target by 75 basis points, bringing the increase since June to 225 bps and establishing the highest target level (3.0-3.25%) since a 50 basis point cut to 3.0% in January 2008. There’s an outside chance that officials could hike by a full percentage point as the Swedish Riksbank did yesterday.

European Central Bank President Lagarde gave a speech yesterday reaffirming a prioritization of inflation reduction over near-term growth promotion. There will be continuing rate hikes at upcoming meetings in spite of a slowdown of growth.

A second financial market concern this Wednesday is the news that 300,000 Russian reservists are being mobilized to fortify Russian forces in Ukraine. With his back against the wall, Putin is going all in on a push to annex seized territories in Ukraine. This threat brings closer the possibility of a widening war.

The combination of tighter monetary policies and escalating geopolitical tension in Europe boosted the dollar further overnight, lifting the weighted DXY dollar index to a new high of 110.87, its strongest level since June 2002. Overnight gains in the greenback overnight amount to 0.6% versus the euro, 0.4% relative to the yuan (which at 7.0425 per USD was its weakest since July 2020), and 0.3% versus the Japanese yen, Australian dollar and sterling.

The Central Bank of Brazil policy committee is also reviewing policy but not expected to engineer a rate change at this time.

A former Japanese finance minister opined that Japanese officials may be close to engaging in unilateral currency market intervention to support the yen, which is now almost 25% below its 52-week high against the dollar.

Geopolitical strains have produced a pause in the recent advance of long-term interest rates. Ten-year sovereign debt yields fell overnight by three basis points in Germany and two bps in the United States. But the end of Britain’s ten-day period of mourning saw the 10-year British gilt yield rise four basis points so far today. Also, a 24-basis point increase in the U.S. 30-year fixed mortgage rate to 6.25% was experience last week. That rate is jumped 60 basis points from 5.65% in the space of just four weeks.

In equity market trading today, the Russian MOEX is quoted currently 0.9% above its intra-day low but 48% below its 52-week high. Share prices closed Wednesday down 1.8% in Hong Kong, 1.6% in Australia, 1.4% in Japan, and 0.9% in Taiwan and South Korea. The German, French and Spanish stock market indices are little changed, but those in Italy and the U.K. show gains of around 0.75%. U.S. stock futures are higher but only fractionally as investors await FOMC news.

The price of West Texas Intermediate oil jumped 2.7%, and gold is 0.7% firmer. It’s been a volatile day for Bitcoin, which sank as low as 18,814 but now shows a net 1.2% overnight advance.

South African consumer price inflation slipped 0.2 percentage points below July’s 158-month high of 7.8% in August. 7.6% is still above the 3-6% target range and the 4.9% level in August 2021. An 11.3% on-year jump in food prices reflected sharp acceleration, but core CPI of 4.4% was below July’s 27-month high of 4.6%.

Slovenian producer price inflation printed at a 4-month low of 21.0% but not far beneath May’s record 22.5% high. Producer prices, by contrast, had dipped 0.3% between August 2020 and August 2021.

Dutch consumer confidence plumbed downward to another record low of -59 in September versus readings of -54 in August, -5 in September 2021 and -28 in September 2020.

In Australia, the Westpac-MI monthly index of leading economic indicator’s 6-month annualized rate fell below zero percent for the first time this year, strengthening the likelihood of a pronounced economic slowdown.

Italian construction output plunged 3.0% on month in July, the biggest monthly drop in 19 months.

The orders index in the CBI monthly survey of British industrial trends recovered five points to -2 in September but remained historically depressed at minus two compared to record highs of +26 touched in November 2021 and both March and May of this year.

In major league baseball, Aaron Judge matched Babe Ruth’s single season total of 60 home runs, which was done in 1927. The only other non-steroid era player to exceed that mark was Roger Maris with 61 in 1961. Judge has 15 more regular season games to match or surpass Maris’ record.

Copyright 2022, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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