Breaking News
Investing Pro 0
NEW! Get Actionable Insights with InvestingPro+ Try 7 Days Free

Fed Expected To Raise Rates By 50bps, But Guidance Is Expected To Be Key

By CMC Markets (Michael Hewson)Market OverviewMay 04, 2022 06:22
uk.investing.com/analysis/fed-expected-to-raise-rates-by-50bps-but-guidance-is-expected-to-be-key-200517714
Fed Expected To Raise Rates By 50bps, But Guidance Is Expected To Be Key
By CMC Markets (Michael Hewson)   |  May 04, 2022 06:22
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

After a disappointing start to the week, European markets rebounded yesterday, while the return of the UK market saw the FTSE100 eke out a small gain largely down to a solid performance from BP (LON:BP), as the energy giant shrugged off a Q1 inspired Russia loss of $20bn, with some decent profits from its underlying oil and gas business.

US markets also managed to post gains for the second day in succession, with all eyes on today’s widely anticipated Federal Reserve rate decision.

European markets look poised to slip back slightly after their gains from yesterday, with the early focus expected to be on the latest services PMIs for April.

These are expected to show that despite rising prices, economic activity increased after a modest slowdown in March, with improvements expected in Italy, Spain, France and Germany, of 54.5, 55.9, 58.8 and 57.9 respectively.

The latest UK lending data for March is expected to show that demand for credit slowed, with net consumer credit expected to fall back to £1.3bn from £1.9bn, while mortgage approvals are expected to remain steady at 70k.

Yesterday’s US JOLTs numbers showed that job vacancies in March rose to 11.5m pointing to a US labour market that continues to look tight.

This should exert upward pressure on wages which are currently rising at 5.6% and should also point to solid hiring trends as we look towards today’s ADP payrolls report and Friday’s non-farm payrolls report.

The April ADP report is expected to see 385k new jobs added, a modest slowdown on March’s 455k, and would be the weakest number since August last year. This slowdown in hiring has been reflected in the latest ISM manufacturing survey which saw the employment component come in at 50.9, down sharply from March’s 55.

Today’s Federal Reserve rate decision should be of no surprise to most people with a 50bps rate rise expected, which should take the upper bound of the Fed Funds rate to 1%.

This is the least of market expectations, when it comes to what the Fed may well announce today, with an outside chance we might get some members to push for a 75bps hike.

The biggest question will be around the pace of its balance sheet reduction program along with the pace of subsequent rate hikes, with the potential for another 50bps hike to come in June.

Powell’s comments at the IMF, that the Fed could well go much harder, and a lot quicker on rate hikes has prompted concern that the Fed may well overplay its hand at a time when the global economy looks set for a sustained slowdown, as China continues to lose its battle with Covid.

While markets will be looking for clues as to how many more 50bps rate rises could well be on the way, a look at the dot plots, as well as the Fed’s inflation forecasts should offer some clues here.

We’ll also have an eye on the topic of balance sheet reduction, with the potential that we could get an announcement today, especially given that there appeared to be general agreement from what we gleaned from the most recent Fed minutes that we could see $95bn a month, $60bn of that being in treasuries, and $35bn in mortgage-backed securities.

From the previous minutes, it was also clear that some wanted to go further with no limits on how fast the balance sheet runoff is done.

This suggests that not only will we get a 50bps rate rise today, but we could also see the start of balance sheet runoff, which would be quite an about-turn on the part of the central bank given it only stopped adding to its balance sheet in March.

EUR/USD – continues to find support just above the lows of last week at 1.0470, with the next target a potential retest of the 2017 lows at 1.0340. To alleviate the risk of a move towards parity we need to see a move back above the 1.0820 area.

GBP/USD – quiet session yesterday above the 1.2412 lows of last week. We need to see a move back above 1.2630 to suggest a retest of the 1.2830 area or risk a move towards 1.2250.

EUR/GBP – last week’s failure at the 0.8470/80 area has seen the euro slip back and rebounding from the 0.8360/70 level. Still in the wider 0.8200/0.8500 range with support also at 0.8320.

USD/JPY – appears to have run out of a bit of steam at 131.25 but is now on course for a potential test of the 135.00 area, and 2002 highs, while above 129.20.

Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

Original Post

Fed Expected To Raise Rates By 50bps, But Guidance Is Expected To Be Key
 

Related Articles

Fed Expected To Raise Rates By 50bps, But Guidance Is Expected To Be Key

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email