(New York = Yonhap Infomax) Ministry of International Economy = On the 14th (US eastern time), the New York stock market fell as a result of the last Federal Open Market Committee (FOMC) regular meeting of the US Federal Reserve (Fed) this year.
The Fed raised interest rates as expected, but next year’s interest rate forecast rose, and Fed Chairman Jerome Powell poured out hawkish remarks, pouring cold water on the Santa Rally.
The Dow Jones 30 Industrial Average fell 0.42% from the battlefield.
The Standard & Poor’s (S&P) 500 Index fell 0.61% from the battlefield, and the Nasdaq Index fell 0.76%.
US Treasury prices fell.
The last FOMC of the year cut the rate hike to 50 basis points, but it was interpreted hawkishly.
Federal Reserve Chairman Jerome Powell said the upside risks to inflation remain and that interest rates will continue to rise.
The dollar weakened.
As the Fed began to adjust the pace, it raised its forecast for final rate levels, but the impact was limited.
New York crude oil prices rose on expectations that global demand for crude oil would rise more than expected.
In a statement released following the two-day FOMC regular meeting in December, the Fed said it would raise its target for the federal funds rate (FFR) from 3.75% to 4.00% to 4.25% to 4.50%. This is the highest level in 15 years.
The Fed has taken the “giant step” for the fourth time in a row since raising interest rates by 75 basis points for the first time in 28 years in June.
In its meeting statement, the Fed retained its original language that “continued increases in the target range are expected to be appropriate to achieve a sufficiently constraining monetary policy stance.”
Regarding the final rate level, the Fed members expected the benchmark rate to rise to 5.1% (median) next year. This is higher than the 4.6% forecast in September.
Federal Reserve Chairman Jerome Powell said that although the pace of increase in the consumer price index (CPI) in the United States has eased in November, it is good to see that upside risks to inflation remain high.
He stressed that there is still a long way to go, saying below-trend growth would continue if inflation were to be brought down.
“We will not consider lowering rates until there is clear evidence that inflation is coming down,” Powell said.
“There is no way to completely and painlessly restore price stability,” he said.
◇Stock market
On the New York Stock Exchange (NYSE), the Dow Jones 30 Industrial Average closed at 33,966.35, down 142.29 points (0.42%) from the battlefield.
The Standard & Poor’s (S&P) 500 index closed at 3,995.32, down 24.33 points (0.61%) from the battlefield, and the Nasdaq closed at 11,170.89, down 85.93 points (0.76%).
The Fed raised its benchmark interest rate by 0.50 percentage point to 4.25% to 4.50%. The pace of interest rate hikes has been lowered from 0.75 percentage points on the previous four occasions to 0.50 percentage points.
According to the Fed’s rate projections, the commissioners expect the final (median) rate to rise next year to 5.1%, or in the range of 5.00% to 5.25%.
Seven out of 19 members predicted higher interest rates. All members of the committee expected higher interest rates than this year, so there was no prospect of a rate cut next year.
For investors expecting a pivot from the Fed, there was no hint of it in the statement. The statement is pretty much the same as before.
Speaking at a news conference, Chairman Powell called the recent slowdown in inflation “a welcome decrease”, but drew the line that “considerably more evidence will be needed to be confident that inflation will continue to decline.”
Powell said there was still a way to go on raising rates and that he would not consider lowering rates until there was clear evidence of inflation coming down.
After Powell’s remarks, the main evaluation was that the meeting was hawkish.
Meanwhile, import prices fell faster than expected in November.
According to the U.S. Department of Labor, the import price index fell 0.6% in November from the previous month. Import prices have been on a downward trend since last July. The November figure fell more than the 0.5% drop expected by Wall Street.
All 10 sectors in the S&P 500 index declined except for health.
Among individual stocks, the share price of Delta Air Lines rose more than 2 percent on the news that the company raised its earnings forecast for the fourth quarter of this year and presented a level that far exceeded expectations for next year’s earnings forecast.
Shares of fintech company Sophie Technology rose more than 6% on the news that the company’s CEO bought back $5 million worth of its stock.
Tesla’s share price fell more than 2% on the news that Goldman Sachs lowered its target price from $305 to $235, citing slowing demand.
NYSE analysts said investors must have been disappointed by the recent emphasis that the Fed will continue tightening despite slowing inflation.
Jim Carson of Morgan Stanley Investment Management told CNBC, “The Fed’s rise to 5.1% from 4.6% in September is a big hawkish issue.” “It’s nowhere to be found. They completely ignored (the slowdown in inflation).”
“Investors hoping for a signal from the statement that a change in direction from the Fed is imminent will be disappointed,” said Jason Fried of Glenmed Private Wealth. It means there is no plan,” he said.
Gina Bolvin, president of Bolbin Asset Management, told MarketWatch that the prospect that the Fed isn’t going to change direction anytime soon has made investors nervous.
“For investors who were in year-end mode for the previous day’s CPI report, hopes for the Santa Rally were dashed as Powell played Scrooge at this followingnoon’s Fed meeting,” he added.
The Chicago Board Options Exchange (CBOE) Volatility Index (VIX) recorded 21.14, down 1.41 points (6.25%) from the battlefield.
◇Bond market
According to Yonhap Infomax (screen number 6532), as of 3:00 p.m. (hereinfollowing Eastern Time), the 10-year government bond yield in the New York bond market was trading at 3.508%, up 0.40bp from 3:00 p.m. on the previous trading day.
The two-year yield, which is sensitive to monetary policy, was 4.276%, up 5.40bp from 3:00 the previous day.
The yield on 30-year government bonds stood at 3.539%, up 1.30bp from the 3 o’clock battle.
The gap between the 10-year and 2-year bonds widened to -76.8bp from -71.8bp on the previous trading day.
Treasury yields and prices move in opposite directions.
The bond market paid attention to the December FOMC results that came out at 2:00 p.m.
At this FOMC meeting, the US Federal Reserve cut the rate hike to 50 basis points, as expected by the market.
The November consumer price index (CPI) announced the previous day rose 7.1% year-on-year and eased significantly, so the Fed’s speed adjustment was a given.
After raising interest rates four times by 75bp, the Fed is expected to reduce the rate of increase to 50bp at this FOMC and return to 25bp in February next year.
However, the focus of the day was the Fed’s economic outlook and final interest rate forecast.
As for the final interest rate, the median interest rate next year is expected to rise from 4.6% to 5.1%.
As Fed Chairman Jerome Powell said in September that the final rate would be higher than expected, attention was focused on the upper end of the Fed rate.
The Fed expects the U.S. unemployment rate to rise to 4.6% next year, while gross domestic product (GDP) will remain at the 0.5% level.
The personal consumption expenditures (PCE) price index is expected to decline to 3.1% next year.
The dot plot was also expected to be hawkish.
Two Fed members forecast rates above 5.5% next year and expected to remain at 5% in 2024.
A rate cut below current levels in 2023 is unlikely, the committee members forecast.
Chairman Powell’s remarks that day were also interpreted hawkishly.
Chairman Powell said at a press conference that day, “The rate of increase in the core CPI in November was 6.0% year-on-year, but it is still three times the target of 2%.”
“The effects of rapid tightening this year have not yet been felt,” he said.
“We will not consider lowering rates until we see evidence that inflation is definitively coming down,” Powell said.
However, Chairman Powell said, “I can’t say whether the recession will be deep or not,” suggesting that the road to an economic soft landing is narrow but possible.
Experts accepted that despite the CPI easing in November, the Fed’s willingness to tighten was not greatly mitigated.
“This cycle of rate hikes must end now,” said Tom Poselli, chief US economist at RBC Capital Markets. It doesn’t make any sense,” he explained. But he added, “of course the Fed will continue.”
“Fed officials have reminded market participants that they thought the tightening cycle was coming to an end, it’s not over yet,” said Cindy Bolleu, chair of the Hartford Investment Policy Committee. Some of the euphoria built up over the weeks expecting it to happen has been withdrawn.”
◇Forex market
According to Yonhap Infomax (screen number 6411), the dollar recorded 135.260 yen in the New York foreign exchange market as of 4:00 p.m.
The euro moved at $1.06788 per euro, up 0.00518 dollars (0.49%) from the battlefield price of $1.06270.
The euro recorded 144.45 yen per euro once morest the yen, up 0.32 yen (0.22%) from the previous record of 144.13 yen.
The Dollar Index, which reflects the value of the dollar once morest six major currencies, fell 0.42% from 104.065 to 103.625.
As predicted by the Fed, the pace of interest rate hikes has been moderated. In a statement released following the regular meeting of the Federal Open Market Committee (FOMC) on the same day, the Fed announced that it would raise the target for the federal funds rate (FFR) from 3.75% to 4.00% to 4.25% to 4.50%. This is the highest level in 15 years. This interest rate hike is the seventh consecutive rate hike this year. The width of the increase was 25bp in March, 50bp in May, 75bp for four consecutive times from June to November, and 50bp in December therefollowing.
Fed members expect the rate to rise to 5.1% (median) next year. This is up from the original 4.6%. The forecast for the end of this year is 4.4%, the same as before. The forecast for interest rates in 2024, the next year, has risen to 4.1% from the previous 3.9%, and the forecast for 2025 has risen from 2.9% to 3.1%.
The Fed emphasized that it will continue to carry out quantitative tightening (QT) as scheduled, including continuing to reduce its holdings of government bonds, agency bonds, and institutional mortgage-backed securities (MBS).
Fed Chairman Jerome Powell said it was good to see that the rate of increase in the consumer price index (CPI) eased in November, but emphasized that there is still a long way to go. “November’s core CPI rose 6.0% year-over-year, but it was still three times the target of 2%,” Powell said at a news conference. He also emphasized the Fed’s willingness to continue raising interest rates until it completes its mission to stabilize inflation.
The dollar plummeted to a six-month low once morest so-called risk currencies, such as the euro in the eurozone and the pound in the UK. It was interpreted as the effect of the risk preference psychology running fast as the Fed began to adjust the pace, such as reducing the range of interest rate hikes to the level of 50 basis points.
It was analyzed that the reins of the risk preference sentiment were released as it was confirmed the previous day that US inflationary pressure had eased. The U.S. inflation rate announced the previous day last month fell short of Wall Street expectations. The November CPI rose 7.1% compared to the same period last year. This is lower than the 7.3% expected by Wall Street Journal (WSJ) experts. Inflation in November fell significantly from the previous month’s 7.7%. The inflation rate remained at 7% for two months in a row.
Excluding food and energy, which are highly volatile, core CPI was also lower than expected. Core CPI for November rose 6.0% over the same period last year. This was lower than the 6.1% rise expected by Wall Street. The 6.3% increase recorded in October was also lower than that.
Following the Fed, the European Central Bank (ECB) and the Bank of England (BOE), which decide monetary policy this week, are predicted to take a more hardline stance. This is because inflationary pressures in the eurozone (19 countries that use the euro) and the United Kingdom are greater than those in the United States. The ECB was expected to raise by 50-75bp and the BOE by at least 50bp. According to Refinitiv, investors expect the ECB and BOE to raise rates by 125 basis points and 150 basis points, respectively, by the end of next year, while the Fed expects only a 60 basis point hike. The British pound rose 0.52 per cent to $1.24230.
Goldman Sachs Asset Management’s chief investment officer, Marie Vasalou, argues that the outlook that the Fed is more hawkish than the market is pricing in the final rate next year is exactly what we’ve previously suggested. did.
He predicted that the Fed would raise interest rates above 5% to keep inflation at its 2% target.
“It is our view that the market’s optimism that the final rate level will be lower and that rates will be cut in the second half of next year is once morest the Fed and is unrealistic,” he said.
“The Fed will not intervene or lower interest rates unless there is a financial crisis or the liquidity the market needs is drained,” he added.
“Right now, I doubt Chairman Powell will drop his work on shifting this momentum,” said Derek Halpenny, MUFG’s head of global market research. seen,” he diagnosed.
“The US dollar’s strength following hawkish rhetoric might quickly reverse,” he stressed.
◇Crude oil market
At the New York Mercantile Exchange, the price of West Texas Intermediate (WTI) for January next year finished trading at $77.28 per barrel, up $1.89 (2.51%) from the battlefield.
The price of WTI rose for three consecutive trading days until today. The closing price on this day is the highest since the 2nd of this month.
Oil prices rose on news of an upward revision of the International Energy Agency’s (IEA) demand forecast and a weak dollar.
In its monthly report on the same day, the IEA predicted that world oil demand would increase by 2.3 million barrels per day this year, raising the figure by 140,000 barrels per day.
The increase in crude oil demand next year is 1.7 million barrels per day, 100,000 barrels higher than before.
The IEA said diesel demand exceeded expectations in almost all sectors around the world, and many manufacturers in Europe replaced existing raw material energy with diesel faster than expected due to the energy crisis and rising natural gas prices.
China’s readiness to reopen its economy faster than expected also helped boost the IEA’s forecast for global oil demand.
The IEA expects total global oil demand to reach 99.9 million barrels per day this year and 101.6 million barrels per day next year.
The previous day, the Organization of Petroleum Exporting Countries (OPEC) maintained its previous forecast, forecasting that crude oil demand would increase by 2.5 million barrels per day and 2.2 million barrels per day this year and next year, respectively.
“There is significant uncertainty regarding the outlook for crude oil demand and supply, which is causing a lot of volatility in the crude oil market,” Oanda senior market analyst Craig Allam said in the report.
However, he explained that the price of WTI has rebounded following nearing $70 per barrel in recent days, which is the point at which the White House has indicated that it will start replenishing the strategic petroleum reserve released this year at that level.
In other words, the possibility of US stockpile purchases continues to support the lower oil price.
The decline in the value of the dollar following the US Federal Reserve (Fed) raised interest rates by 0.50 percentage point contributed to the rise in oil prices.
The dollar index, which shows the value of the dollar once morest six major currencies, traded around 103.707, down regarding 0.4% at this time.
News that US weekly crude stockpiles unexpectedly rose sharply capped the upper end of oil prices.
According to the US Energy Information Administration (EIA), crude oil inventories for the week ending on the 9th increased by 10.231 million barrels from the previous week to 424.129 million barrels.
Crude oil inventories returned to an upward trend for the first time in five weeks. The increase on the day was a significant increase in contrast to the 3.1 million barrel decline expected by experts compiled by the Wall Street Journal (WSJ).
Gasoline inventories increased by 4.496 million barrels to 223.583 million barrels, while diesel and heating oil inventories increased by 1.364 million barrels to 120.171 million barrels.
Analysts expected gasoline inventories to increase by 2.6 million barrels, while diesel and heating oil inventories would increase by 2 million barrels.
Gasoline inventories increased more than the market expected.
Matt Smith, an analyst at Kapler, told MarketWatch that “exports to the Gulf of Mexico were significantly reduced last week due to bad weather (such as fog),” explaining that the majority of the increase in inventories, 8.8 million barrels, was concentrated in the region.
However, he explained in a report coming out next week that disruptions in the Keystone pipeline will be reflected in the drop in imports, which might decline significantly as exports recover.
syjung@yna.co.kr
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