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Global Markets Rise Ahead of Fed, Inflation Eases

Global stock markets and futures for Wall Street rose on Wednesday as investors anticipated the release of notes from a Federal Reserve meeting. London, Frankfurt, Shanghai, Hong Kong, and Seoul all saw their markets rise while oil prices declined. Technology stocks weighed heavily on the market, with Apple’s shares falling 3.7%. Inflation in Europe slows unexpectedly.

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Global Markets Rally Ahead of Fed’s Notes, JOLTS Release As Inflation in Europe Unexpectedly Signals Relief

The expected release of the Federal Reserve’s meeting notes on Wednesday caused global stock markets and Wall Street futures to rise as investors hoped for indications that the central bank was moderating its plans for more interest rate hikes in order to control inflation. 

According to today’s market news, In Europe, London and Frankfurt saw an increase in stocks, while in Asia, Shanghai, Hong Kong, and Seoul experienced a rise in markets. However, oil prices saw a decline. Wall Street had dropped the day before after experiencing its largest yearly slump in 14 years in 2022.

Concerns among traders in a forex market include the possibility that the Fed(U.S. Central Bank)  and other central banks may be willing to risk causing a recession in order to curb inflation, which is currently at multi-decade highs. 

The minutes from the December meeting are anticipated to shed light on whether policymakers are postponing or decreasing planned rate increases because of a slowdown in economic activity.

The FTSE 100 in London increased 0.1% in early trading to reach 7,563.34. The CAC 40 in Paris increased by 0.4% to 6,623.89. The DAX in Frankfurt increased by 0.8% to 14,181.67.

The DAX

The DAX 

Economists Rubeela Farooqi and John Silvia wrote in a study that “markets continue to push back, betting on softer policy, even if the Fed expects to keep rates higher for longer.” “We do not think a switch to rate decreases is possible this year,” they added.

On Wall Street, the future for the benchmark S&P 500 index was up 0.2%. That for the Dow Jones Industrial Average was 0.1% higher. The S&P 500 lost 0.4% on Tuesday, and the Dow slipped less than 0.1%. The Nasdaq composite dropped 0.8%.

One of the biggest weights on the market to drop was technology stocks. For the first time since March 8, 2021, Apple’s market worth dipped below $2 trillion after a 3.7% decline. 2022 saw the first yearly loss in the iPhone manufacturer’s shares in four years, as shares dropped over 27%.

Asian markets saw a mixed performance, with the Shanghai Composite Index increasing slightly and the Nikkei 225 in Tokyo experiencing a significant drop. The Hang Seng in Hong Kong saw a significant increase, while the Kospi in Seoul also saw a rise. 

In the Pacific region, Sydney’s S&P-ASX 200 saw an increase, and India’s Sensex also rose slightly. However, Southeast Asian markets declined. In addition to concerns about inflation, investors are worried about the impact of the ongoing conflict between Russia and Ukraine and China’s COVID-19 outbreaks. 

Currently, the Federal Reserve’s key lending rate stands at a range of 4.25% to 4.5%, having increased seven times in the past year in order to control economic activity and rising prices. The central bank expects the rate to reach a range of 5% to 5.25% by the end of 2023 and does not anticipate cutting rates before 2024.

Upcoming Crucial US Data

The December Job Openings and Labor Turnover Survey, or JOLTS, and ISM manufacturing data for will also be made released on Thursday. These are expected to show a decrease in hiring. Investors hope that this will encourage the Federal Reserve to lower or delay potential interest rate hikes. 

The central bank’s next decision on rates is scheduled for February 1. After skyrocketing from a range of 0% to 0.25% at the beginning of 2022, the Fed’s benchmark lending rate now ranges from 4.25% to 4.5%. The U.S. central bank does not currently foresee a rate cut until 2024 but predicts that it will reach a range of 5% to 5.25% by the end of 2023.

In addition, investors are anticipating corporate profit earnings in mid-January, with analysts predicting that earnings for companies in the S&P 500 will decline during the fourth quarter and remain flat for the first half of 2023.

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Europe’s Promising Inflation Data

According to preliminary figures released on Wednesday, France’s inflation slowed to 6.7% in December, down from the record high of 7.1% seen in the previous month. This is lower than the expected harmonized inflation rate of 7.2%, which is adjusted for comparisons across the eurozone. 

The greatest decrease was seen in energy prices, which rose by 15.1% annually, down from the 18.4% seen in November. This follows news of slowing inflation in Germany and Spain, with both countries reporting a fall in their HICP and inflation rates, respectively. 

As a result, analysts are looking for signs that inflation has peaked in the main economies of the eurozone and whether this will affect the European Central Bank’s previous statement that interest rates will need to increase “significantly.”

According to analysts, achieving significantly lower inflation rates will not be easy. That will depend on the state of energy markets and challenges in the agricultural industry affecting food prices. 

They stated that while Germany’s inflation numbers are not necessarily a cause for relief, they serve as a reminder that energy prices largely drive inflation in the eurozone

The analysts added that the European Central Bank cannot and will not base its policy decisions on volatile energy prices. Italy will release its inflation figures on Thursday, and a flash estimate for the eurozone will follow on Friday.

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Author

  • Zahari Rangelov

    Zahari Rangelov is an experienced professional Forex trader and trading mentor with knowledge in technical and fundamental analysis, medium-term trading strategies, risk management and diversification. He has been involved in the foreign exchange markets since 2005, when he opened his first live account in 2007. Currently, Zahari is the Head of Sales & Business Development at TraderFactor's London branch. He provides lectures during webinars and seminars for traders on topics such as; Psychology of market participants’ moods, Investments & speculation with different financial instruments and Automated Expert Advisors & signal providers. Zahari’s success lies in his application of research-backed techniques and practices that have helped him become a successful forex trader, a mentor to many traders, and a respected authority figure within the trading community.