Here are the key events happening on Tuesday this could have an impact on trade.
FED ASSISTANCE IN 2024? : The Federal Reserve is unlikely to pivot and cut its benchmark interest rate until 2024 at the earliest as it tries to crush the highest inflation in four decades, according to Goldman Sachs strategists.
The bank’s economists – led by Jan Hatzius – predicted in an analyst note on Monday that the US central bank will raise interest rates four more times by the end of 2023, eventually keeping them within a range between 4.25% and 4.50% until 2024.
The analysts’ note comes ahead of the Fed’s two-day meeting this week, in which Hatzius now sees policymakers approving a third consecutive interest rate hike of 75 basis points, triple the usual size.
INFLATION RISE FASTER THAN EXPECTED IN AUGUST, KEEPING PRICES VERY HIGH
Goldman Sachs then predicted the Fed would make back-to-back half-percentage-point hikes in November and December, followed by a quarter-percentage-point hike in 2023 and a rate cut in 2024. .
“We see several reasons for the change in plan,” Hatzius wrote. “The stock market has threatened to undo some of the tightening in financial conditions the Fed had designed, strength in the labor market has reduced fears of excessive tightening at this point, Fed officials now appear to want somewhat faster and more consistent progress in reversing overheating, and some may have reassessed the near-term neutral rate.”
Although Goldman economists, like many other experts, initially thought the Fed would scale back the magnitude of rate hikes after July, that changed after August inflation data released last week became more warmer than expected. The consumer price index unexpectedly rose 0.1% in August from the previous month, dashing hopes of a slowdown. On an annual basis, prices rose 8.3%, near the highest level since 1981.
Stocks fell sharply after the surprisingly hot report on fears of an even more aggressive Fed, with the Dow Jones slipping 1,276 points – the worst day since June 2020.
HOUSING REPORT: Investors are eagerly awaiting a housing report on Tuesday morning to assess another factor in which inflation is affecting the economy.
As of 8:30 a.m. ET, the Commerce Department is expected to report that the number of new homes under construction in August fell 0.1% to a seasonally adjusted annual rate of 1.445 million.
This would mark the second consecutive monthly decline to the lowest in a year and a half (since February 2021).
Housing starts have fallen 20% in the three months since hitting a nearly 16-year high of 1.810 million in April (the highest since June 2006) as borrowing costs rise and rising prices have reduced affordability.
NAHB CEO GIVES DARK ASSESSMENT OF HOUSING MARKET: ‘WE HAVE BIRTHED A HOUSING RECESSION’
Future building permits, a good indicator of future housing activity, are expected to fall 4.5% to 1.610 million in August, the lowest since September (for context, January’s print of 1.899 million was the higher since May 2006).
It would also be the fifth consecutive monthly decline in building permits, which had not happened since the end of the global financial crisis.
Tuesday’s report follows the NAHB Housing Market Index, released Monday morning, which plunged more than expected to the lowest since May 2020 as high mortgage rates and construction costs weighed on the mood. home builders.
FED TO MEET, RATE HIKE ON HORIZON: The two-day meeting of the Federal Open Minutes Committee (FOMC), the sixth policy meeting of the year, begins Tuesday morning.
It ends Wednesday afternoon with the Fed’s rate decision, policy statement, summary of economic projections, and press conference following the meeting with Fed Chairman Jerome Powell.
The Federal Reserve is widely expected to raise the federal funds rate by three-quarters of a percentage point to a range of 3% to 3.25%, up from the current range of 2.25% to 2.50%.
It would be the central bank’s third consecutive 75 basis point rate hike, following moves in July and June.
FEDERATION RATE HIKES WILL NOT STOP INFLATION IF GOVERNMENT SPENDING REMAINS HIGH, PAPER SAYS
Before June, the Fed had not raised rates by 75 basis points since November 1994. The Fed raised the funds rate by half a point in May and by a quarter point in March.
Previously, the funds rate was in a range of 0% to 0.25% after two emergency rate cuts in March 2020 in response to the global pandemic.
The Federal Reserve’s balance sheet currently stands at just under $9 trillion, having doubled since the pandemic as the Fed purchased trillions in Treasuries and mortgage-backed securities in an attempt to stave off a economic collapse. The central bank began reducing its balance sheet (quantitative tightening, or QT) in June by authorizing up to $47.5 billion per month ($30 billion in Treasuries and $17.5 billion in MBS) to mature without reinvesting the proceeds. This number has doubled since last week.
The Federal Reserve’s preferred measure of inflation, the year-over-year change in core personal consumption expenditure, fell slightly more than expected in July to 4.6%. It was the fourth month in five months of slowing growth, down from a 39-year high of 5.3% in February, but still significantly above the 1.5% level at the start. of the year.
MARKETS, HIGHER OBLIGATIONS: Major U.S. stock indexes edged higher on Monday and bond yields hit their highest level in more than a decade as investors anticipated the Federal Reserve’s interest rate decision later this week.
The S&P 500 rose 26.56 points, or 0.7%, to 3,899.89. The broad stock index opened with losses but rallied over the past hour of trading, putting it firmly in positive territory. The Dow Jones Industrial Average advanced 197.26 points, or 0.6%, to 31,019.68. The technology-focused Nasdaq Composite climbed 86.62 points, or 0.8%, to 11,535.02.
Last week, the S&P and Nasdaq posted their biggest weekly declines since June amid a series of corporate warnings that sounded the alarm over the trajectory of the US economy.
Companies such as FedEx and General Electric were among those reporting signs of economic turmoil.
The messages raised concerns among investors about the ability of corporate earnings to hold up as the Fed continues to hike rates and the United States potentially heads into a recession.
This week, investors are largely focused on a series of interest rate decisions by central banks.
The Fed’s decision, announced on Wednesday, will be followed by the Bank of England on Thursday. Investors sold government bonds ahead of the Fed meeting, sending yields to their highest level in years.
MARKET NEWS: Healthcare was one of the sectors that recorded losses on Monday, weighed down by losses from vaccine makers.
Moderna fell $9.84, or 7.1%, to $127.90, making it the worst performing stock in the S&P 500, after President Biden said in a TV interview that the coronavirus pandemic COVID-19 was over.
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Novavax fell $1.98, or 6.5%, to $28.43, while Pfizer lost 59 cents, or 1.3%, to $45.44.
Later this week, investors will analyze results from companies such as Costco Wholesale and homebuilder Lennar. They will also get the full results from FedEx on Thursday after its sell warning last week.