In the name of God, the most gracious, the most merciful
And prayers and peace be upon the most honorable of the prophets and messengers, our master Muhammad and his family and all his companions
Soft slack:
The US Federal Reserve is working in full swing to rein in, and this will only come with a weak labor market and greater unemployment, which reduces consumer spending and helps lower inflation, and this is what is called a soft recession.
Fed data hamper:
– The slowdown in inflation, which was less than expected, to record 6.4%, while expectations were at 6.2%.
It rose by more than expectations, to record 3%, which means that consumers are still consuming more
– It was released higher than expectations, recording 0.7%, while expectations were at 0.4%.
This data indicates that the rate of price rise is still high, and of course it may increase fears of a possible return of US inflation to accelerate, which could harm the US economy while trying to control the pace of prices.
What the markets price:
The markets began to price that interest rates will be above 5% until the end of this year, and hopes for the end of monetary policy tightening during this year have become unlikely.
What the markets are waiting for:
The markets are awaiting a batch of very important data that should paint more clarity on the Fed’s next move on interest rates
❖ On Friday, God willing, a price index will be released that reflects the US consumer data, which the US Federal Reserve is very interested in to determine its plan for monetary policy.
Economists polled by Bloomberg expect a 0.4% rise in the core measure of the PCE price index in the United States, which excludes food and fuel, as economists expect the largest rise in spending on goods and services since October.
❖ This week, the readings for home sales and for the month of January will be released, along with the second estimate of GDP for the fourth month.
❖ It is expected to be issued on Wednesday, during which the US Central Bank raised the benchmark interest rate by 25 basis points
Hence, traders look through these minutes carefully for any signals regarding future changes in the rates
❖ The markets are also awaiting the release of (monthly) (January). It is also expected that the largest increase in personal income in a year and a half will appear, supported by a flexible labor market and a significant adjustment in the cost of living for social security recipients
Market Pricing of Interest Rate:
❖ Analysts from Goldman Sachs (NYSE:) and Bank of America (NYSE:) indicated that they expect the US Federal Reserve to raise interest rates 3 more times this year, and raised their estimates after data indicated persistent inflation and a strong labor market.
❖ Goldman Sachs analysts expect that, in light of this, interest rates will reach a peak money rate of 5.25%-5.5%.
Conclusion :
Economic data contributed greatly to increasing fears about the return of US inflation to acceleration due to the strength of the US labor market. Therefore, it is unlikely that the tightening policy will end this year, and this is what the markets were hoping for, which controls risk appetite.
However, the year is still long, and more economic data is awaiting that may modify the outlook of the Fed and the markets
However, I am convinced that it will continue to rise as a corrective performance before resuming the decline again, as I explained this through the illustrated analysis attached to the report.
Therefore, it will be negatively affected, and we may see more decline in the short term as a corrective performance before resuming the rise, God willing, as I made it clear in the attached video
Please accept my regards
Dr.. Muhammad Al-Ghobari