Investors Wait For Fed Decision (Wall Street Cheat Sheet)

S&P 500 12-5

Last week the financial markets stalled out of concern that monetary tightening would continue, leading to a global economic recession. The recent increase in the producer price index adds to the growing fears that the Fed would not halt the pace of rate rises, despite some better-than-expected US numbers (unemployment and ISM services).

The rate decisions by the Federal Reserve and the European Central Bank next week should be pivotal.

There is a growing concern about a recession in 2023. The Fed and Biden administration has stressed a strong economy, but investors’ faith in them has crumbled under the pressure of conflicting economic indicators.

The bond market is signaling to the stock market that a recession is imminent and will be hard to avert. 

Inflation Easing: Are We Going To A Hard Stop?

The availability of formerly scarce items, such as chicken wings and used vehicles, has led to a gradual price decline. Stores continue to reduce items to clear off a surplus stock of all types of goods. In other words, the system is still feeling the effects of past stressors. 

The cost of goods has declined, but services have yet to. Many services are actually increasing. 

The big red flag is reduced shipping which indicates a strong possibility of a recession. The cost of delivering a conventional 40-foot container from China to the US West Coast is $1,935, down more than 90 percent from its September 2021 top of $20,586. 

It is evident that inflation is dipping, but it is unsure how it affects the economy along with increased Fed Rates. 

Retirement Reforms Are Being Discussed in Congress. Here are the Seven Proposed Alterations

Congress is looking at legislative retirement changes in the “Secure 2.0.” If this bill is enacted, it will be the second major change to US retirement laws since 2019. 

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Key changes under consideration by Congress include mandating automatic enrollment in retirement plans, employer retirement matching contributions for student loan payments, raising the minimum distribution age, and adjusting contribution limits.

Covid Restriction Eased In China 

In response to numerous protests, the Chinese government has stated that the nation will no longer enforce its controversial Zero-COVID control measures. The National Health Commission has announced changes that would reduce stress on the Chinese people, such as removing testing requirements for internal travel and letting those with minor symptoms to remain at home under quarantine. 

Though the Chinese people have widely welcomed the measures, government officials have cautioned that health authorities will continue to monitor infection levels and case fatality rates, which might lead to a return to stricter control measures.

Calendar & Events

  • Tuesday December 13: CPI (MoM) (November)
  • Wednesday, December 14: Fed Rate Decision
  • Thursday, December 15: Retail Sales (MoM) (November)

Next week the line to enter will be long. On Wednesday, the Federal Reserve will announce its interest rate policy, followed by announcements from the Swiss National Bank, the Bank of England, and the European Central Bank on Thursday.

What’s more, though, is that this is only the beginning! Inflation data for the United States and Germany will be released on the same day (Tuesday), followed by inflation data for the United Kingdom and the United States on Wednesday and Thursday, and finally, retail sales figures for the United States for November on Friday (Friday).

BONDS

Despite a disappointing figure at the end of the week, in which the PPI (Producer Prices Index) for November rose by +0.3% compared to the previous month instead of the +0.2% forecast, expectations of a rate rise of 50 basis points remained nearly steady at around 75%.

But we’ll be keeping an eye on Tuesday’s announcement of the CPI (Consumer Price Index), which is predicted to show a modest slowing from October’s +7.7 percent year-over-year to +7.3 percent.

While investors would likely misread a score that came in higher than expected, a report that was in line with or lower than expectations would likely provide fuel to the recent boom in stock market indexes. Currently, the 10-year US government bonds yield is 3.53%, up from 3.49% on Friday.

COMMODITIES

OIL & ENERGY

Beijing has made many statements this week to stimulate its economy, but worries of a recession have persisted. Because falling economic activity always results in less need for oil, this weighed on the price of that commodity.

Due to this, Brent crude is already trading below USD 80, while the US benchmark is steadily declining towards USD 70. To order a restocking of domestic inventories, which have evaporated like snow in the sun this year, the White House has set the price at this level.

GOLD & PRECIOUS METALS

Beijing is the hub for the global basic metals industry. When economic conditions improve in the Middle Kingdom, metal prices tend to rise as a result. In this context, the prices of different metals on the LME have increased as a result of the relaxing of the national health policy and the new support measures for Chinese real estate.

Metal prices have risen recently, with copper now fetching over $8,500 per metric ton, nickel over $31,000, and zinc surging to $3,240. Gold prices have been relatively stable at about USD 1796 per ounce recently.

CRYPTOCURRENCY

This week, uncertainty has been the driving force behind Bitcoin’s price action in the cryptocurrency market. Since Monday, the digital currency has been trading at approximately $17,000; now, it has gained 0.26 percent. Small amplitudes imply crypto investors are at a loss for action following the FTX collapse.

Bitcoin and the cryptocurrency market as a whole may struggle to make a decisive rebound from the sharp loss it has undergone in recent months in the absence of substantial positive triggers.

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