Investors prepare for ‘super-central-bank week’ as US rate increase appears done deal
With a US interest rate increase almost a done deal, investors are now trying to figure out whether it would be a one-off move or the start of a fresh tightening cycle, while also bracing for a borrowing-cost increase in Japan, which is highly likely and may jolt capital flows. As the odds of a 25 basis-point rate increase at the US Federal Reserve’s policy meeting on Thursday have risen to 92 per cent, stock traders have shifted the focus to whether the world’s biggest central banks would...
Traders are bracing for central bank decisions in the US, the UK and Japan and are weighing whether a Fed rate increase marks one-off move or new cycle
As the odds of a 25 basis-point rate increase at the US Federal Reserve’s policy meeting on Thursday have risen to 92 per cent, stock traders have shifted the focus to whether the world’s biggest central banks would deliver further increases.
A one-off increase may be interpreted as dovish, or even positive for equities, with the move helping to restore the Fed’s credibility and showing chair Kevin Warsh’s commitment to reining in inflation. If the Fed signals more rate increases to come, stocks may face severe challenges, with a mix of stretched valuations amid a persistent oil crisis.
“A one-and-done outcome would allow the Fed to show that it is responding to inflation, respecting the message from markets and acting independently despite political pressure,” said Stephen Innes, a managing partner at SPI Asset Management. “It would also take some of the guesswork out of the remaining meetings this year.”
