More rate hikes coming

Equity markets are coming under some pressure on Thursday, with Asia mostly in the red and Europe poised to open almost a percentage point lower.

Chinese stocks are among the worst hit after the National Health Commission sought to quash rumours on social media that the country is studying ways to exit Covid-zero. That sparked a strong rally earlier this week which has only partly been reversed following the clarification.

Perhaps that’s a sign of how low stocks have fallen that investors are keen to jump back in on any bullish story, well-founded or not. Maybe there’s a view that there’s no smoke without fire and the denial is not entirely honest. We’ll see over the coming days whether other officials seek to put an end to those rumours but it is interesting how few rejections there have been and a number of days have now passed.

The Fed gives with one hand and takes with the other

Just as investors believed they’d secured the dovish pivot they so craved, Chair Powell stepped up to deliver another crushing blow to the markets. Well, that’s how it’s been perceived initially but that could change once the dust settles.

The acknowledgment that future decisions will take into account cumulative tightening and policy lags was a strong nod to slowing the pace of tightening in December, barring some frankly terrible data in the interim. That is exactly what investors wanted to hear. What they didn’t want was the claim that rates could go higher than they previously thought and they still have some way to go.

This is still a net positive as a slower pace buys them time to see an improvement in the data and ease off the brake ensuring the least economic cost. That’s not to say a recession will be avoided but maintaining 75bps makes that job much harder. There are two jobs and inflation reports to come before the December meeting. By that time, things may look a little more promising and less uncertain. ​

Who’d want to be at the BoE right now?

The Bank of England will likely join the Fed in raising rates by 75bps later today. The central bank has had the unenviable job of fighting soaring inflation amid enormous economic and political uncertainty. In recent months the country has had three prime ministers, three very different economic agendas, and no budgets outlining them. Not ideal for a central bank that’s fighting double-digit inflation.

It hasn’t handled things perfectly this year either, that’s clear. It’s taken a far more cautious approach than others leaving it in the situation now that it must raise rates aggressively and publish economic forecasts with little insight into government spending and tax plans. The outlook is uncertain enough without that.

A crushing blow

Bitcoin also saw its hopes crushed as Powell took to the stage and spoiled the party. An initial rally to $20,800 was quickly wiped out and the sell-off didn’t stop there. Bitcoin ended the day lower but managed to survive a run at $20,000. Whether it can hold above here will depend on tomorrow’s jobs data. Another red-hot report could weigh heavily on risk appetite and see bitcoin slip back below $20,000 once more. ​

For a look at all of today’s economic events, check out our economic calendar:

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Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam