The Swiss National Bank (SNB) and the Bank of England (BoE) surprised by maintaining their rates unchanged at yesterday’s trading session. The Bank of Japan (BoJ) surprised by maintaining its ultra-lose monetary policy stance unchanged. Combined with a hawkish pause earlier this week, the major currencies further sank against the greenback. I think that the BoE decision was premature, and the bank will be obliged to hike more in the coming meetings.

But uf there is one bright spot in Britain, it is the FTSE100, supported by cheaper sterling and higher energy prices, as the US technology stocks are set to post their worst performance this year on the back of hawkish Federal Reserve (Fed) and rising yields – although the US 2-year yield is headed toward 5% mark, and bond traders bet that the Fed will announce a 3rd pause in November.

Elsewhere, there was no progress regarding a dealt between UAW and the Detroit automakers, which combined to a cheaper yen could further bolster appetite in Japanese carmakers.

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The Federal Reserve (Fed) maintained interest rates unchanged, as expected. It revised its growth forecast higher, as expected. The dot plot showed one more rate hike before the end of this year, and less cuts next year.

The Fed announcement was hawkish, without much surprise. The market reaction was smooth and unsurprising, as well. Yields and the dollar gained, stocks fell.

Today, it’s the Bank of England’s (BoE) turn to decide. Up until yesterday, the expectation was an almost certain 25bp hike, but yesterday’s shocker inflation data has shaken these expectations to 50-50.

Elsewhere, the barrel of US crude fell below the $90pb on Wednesday, FedEx topped estimates thanks to UPS strike threat and GM, Ford and Stellantis have until noon tomorrow to avert broader strikes.

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The Federal Reserve (Fed) will announce its latest policy decision and reveal revised growth and inflation forecasts today.

The Fed is broadly expected to keep the interest rates unchanged; the policymakers will likely sound satisfied with the progress on inflation, and they could revise their growth forecasts significantly higher. Strong growth forecast could trigger a fresh wave of hawkish trades across stock, bond, and currency markets. But the reaction is not a given as the US economy gives signs of exhaustion and recession is still on the cards. So if you see the US dollar sold after a hawkish Fed announcement, don’t ne too surprised!

Across the Atlantic Ocean, the British inflation unexpectedly eased from 6.8% to 6.7% in August, core inflation fell from 6.9% to 6.2%. The surprise fall in UK inflation triggered a kneejerk selloff in sterling, as today’s data cements the expectation that the Bank of England’s (BoE) next rate hike could also be its last.

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Strikes at GM, Ford and Stellantis factories dampened overall market sentiment on Monday. The walkout led by United Auto Workers (UAW) began last Friday and saw little progress.

GM, Ford and Stellantis fell yesterday. The barrel of US crude traded past the $92 level, as Brent crude advanced past $95pb.

This week, the US policymakers will certainly opt for a ‘hawkish pause’. The Fed will likely revise its growth expectations significantly higher on the back of resilient consumer spending and solid growth. The US dollar index tested the important 38.2% Fibonacci resistance last week, especially after the euro sold off following the ECB rate hike. The Fed announcement could push the US dollar index into the medium-term bullish consolidation zone.

If the Fed is not expected – not even a little bit – to hike rates this week, the Bank of England (BoE) could hike the bank rate by a final 25bp on Thursday. In Japan, not much is expected to change this week. Warnings from Japanese officials that a further yen selloff would spark a direct FX intervention slowed down but not reversed the JPY selloff. The USDJPY is trading just below the 148 level, with, sure, limited upside potential, and of course a good downside potential, waiting to be unlocked by a reasonably hawkish BoJ, and I don’t see that coming this week.

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The European Central Bank (ECB) raised interest rates by 25bp yet the euro sold off. In fact, many euro bears also jumped on a trade yesterday as Lagarde announced that the ECB significantly pulled its economic projections to the downside. BUT, in the meantime, the ECB revised its inflation expectations higher as well. Therefore, it’s naïve to think that the ECB can’t continue hiking rates with such a sour economic outlook, especially when the barrel of US crude trades past $91pb, and Brent is getting ready to test $95pb.

Rising oil prices are not benign, but the hawkish ECB is not necessarily positive for the euro, and here is why: the data released in the US yesterday showed that both retail sales and PPI got a decent boost because of higher gasoline prices in August. There is no chance that Jerome Powell will announce the end of the rate hikes next week.
PS: US government drama and shutdown risk could eventually soften US outlook and temporarily prevent the Fed hawks from forcefully coming back.

In equities, ARM rose 25% yesterday and gained another 7% in the afterhours trading!

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