March 22, 2023: Markets Anticipate The US Interest Rate Decision

European stocks open mixed in anticipation of the US Federal Reserve’s decision.

European stocks were mixed Wednesday after inflation unexpectedly accelerated in the UK, while investors worldwide awaited the US Federal Reserve’s latest interest rate decision.

The US Federal Reserve is trying to strike a balance between fighting inflation and stopping the banking crisis. Most investors expect the central bank to remain committed to tightening interest rates and raising them by 25 basis points.

Today, the data showed that consumer price inflation in the United Kingdom increased from 10.1% in January to 10.4% in February, 0.5% higher than expected. Stoxx Europe 600 index settled at 446 points at exactly 08:08 GMT. The British FTSE 100 index declined by 0.34% at 7510 points, the German DAX index settled at 15179 points, and the French CAC index fell by 0.23% at 7096 points.

Japanese stocks record the greatest daily increase in two months.

Japanese stocks rose at Wednesday’s close after yesterday’s holiday to catch up with the gains of their global peers amid anticipation of the US Federal Reserve’s interest rate decision later today.

Rakuten Group, Inc., an e-commerce company, is planning an initial public offering of its banking arm in early April, with a value of $755 million.

Auto stocks rose, led by Nissan, which rose 3.9%. Honda rose 2.9%, and Toyota added 1.9%.

Rises in the US technology sector helped lift shares of Japanese chip companies. Tokyo Electron for chip-making equipment rose 2.3%, and Advantest for manufacturing chip-testing equipment rose 2.8%.

The Nikkei index rose at the end of the session by 1.93% at 27466 points, recording the most prominent daily rise since January 18, and the Topix index rose 1.74% to 1962 points.

Cryptocurrencies continue to rise, and Bitcoin is trading above $28,200.

Bitcoin rose during trading on Wednesday. The digital currency looked like a haven, fulfilling at least one part of its founder Satoshi Nakamoto’s dream of being a haven for investors when they are struggling.

Bitcoin was up 0.29% at $28,288.75 as of 07:16 GMT, according to Coinbase data. Ethereum added 0.22% at $1,800.51, while ripple fell by 6.61% at 45.79 cents.

The Australian newspaper, AFR, pointed to the continuation of regulatory crackdowns on the crypto industry. The prudential regulator for the financial services industry has asked banks to provide daily updates on their digital assets as part of precautionary measures to early detect vulnerabilities in the local banking industry and obtain more information about any potential impact.

The dollar is near its lowest level in 5 weeks before the US Fed interest decision.

The dollar settled near its lowest level in five weeks, Wednesday, March 22, ahead of the conclusion of the US Federal Reserve’s monetary policy meeting, as investors await a clearer picture of the central bank’s path in the wake of global banking turmoil.

Investors are focused on whether the US Federal Reserve will stick to its policy of monetary tightening to combat stubborn inflation or will temporarily stop raising interest rates in light of the recent crises that banks have faced, including bankruptcies and bailout packages.

The dollar index, which measures the performance of the US currency against six major currencies, reached 103.19, up slightly from the lowest level in five weeks of 102.99 it touched last night. The euro reached $1.0770, settling near a five-week high of $1.0789, which it hit overnight.

CME’s FedWatch tool showed that markets now expect a 15% chance that the Fed will not raise interest rates, with an almost 85% chance that it will do so by 25 basis points. The market was 24% a month ago, expecting a 50bp rate hike.

Investor sentiment remained fragile as concerns about the banking sector’s future began to recede following the sharp market volatility of the past few weeks, which saw the collapse of two US banks earlier this month and the bailout of Credit Suisse earlier this week.

The US Federal Reserve concludes its meeting today, Wednesday. The monetary policy statement will be published at 18:00 GMT, followed by a half-hour press conference by US Federal President Jerome Powell. The yen rose 0.04% to 132.47 yen per dollar, while the pound sterling reached 1.2233 dollars in the latest transaction, up 0.16% during the day. The Australian dollar increased 0.36% to $0.6694, while the New Zealand dollar gained 0.11%, recording $0.6199.

Gold is moving in a narrow range.

Gold prices moved in a narrow range on Wednesday, March 22, with some investors’ reluctance to trade pending the US Federal Reserve’s decision on interest rates and a clearer picture regarding the future of monetary policy.

Gold settled in spot transactions at $ 1940.11 an ounce by 05:40 GMT after falling 2% yesterday, Tuesday. US gold futures rose 0.1% to $1,942.10.

Christopher Wong, a strategist at OCBC for currency trading, said, “The market is still witnessing rapid developments, but according to the current situation, it seems that the wounds of the banking sector have begun to heal after the emergency support packages and the authorities’ assurances, and gold has declined with the decline in demand for it as a haven.”

The precious metal recently jumped about 10%, or about $180, hitting its highest level in a year, thanks to the demand for it as a haven after the collapse of the US Silicon Valley bank and a crisis in Credit Suisse. However, prices calmed after the Credit Suisse bailout revived risk appetite, despite continued uncertainty about the financial system.

On Tuesday, Treasury Secretary Janet Yellen told bankers that the US banking system was stabilizing but that more steps may be needed “if small businesses face a run of deposits that poses a risk of spillover.”

Investors’ attention is now focused on the US Federal Reserve’s decision, which is scheduled to be issued at 18:00 GMT, followed by a press conference by the Chairman of the Board, “Jerome Powell.” The Fed is widely expected to raise interest rates by 25 basis points, CME’s FedWatch tool showed.

Oil declines after an unexpected increase in US crude inventories

Oil fell in early Asian trading on Wednesday, March 22, paring its gains for two consecutive days after a report showed that US oil inventories rose unexpectedly last week, indicating the possibility of weak demand for fuel.

Brent crude futures fell 48 cents, or 0.6%, to $74.84 a barrel at 02:03 GMT. It had risen by more than 3% this week. US crude futures fell 47 cents, or 0.7%, to $69.20.

Sources said that data released by the American Petroleum Institute on Tuesday showed increased crude stocks in the United States by about 3.3 million barrels in the week ending March 17.

The vast increase contradicted analysts’ expectations of a stock decline by about 1.6 million barrels. Traders and analysts will watch data from the US Energy Information Administration on Wednesday to see if it confirms signs of weak demand for crude oil.

Meanwhile, markets are awaiting the outcome of today’s US Federal Reserve meeting, which is widely seen as the most difficult monetary policy stance the Fed has recently faced.

After the meeting, the US Federal Reserve Chairman, “Jerome Powell,” will reveal new economic expectations and the bank’s path to raising interest rates.

While the market expects the Federal Reserve to raise interest rates by 25 basis points on Wednesday, central bank watchers say it may pause further increases or delay issuance of new economic forecasts due to turmoil in the global banking sector. A pause in raising interest rates may help revive economic activity and thus increase demand for fuel.

Oil prices recorded their sharpest drop in months last week after the collapse of central US banks beginning March 10, and a crisis at European bank Credit Suisse culminated in an emergency bailout over the weekend.

OPEC+ officials, hedge fund managers, and oil market participants have described the recent drop in oil prices due to speculation. They insist that increased demand will push prices higher in the coming months.

Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances, or needs.

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