An extensive preview of forthcoming events taking place in European as well as global markets from Brigid Riley. <h2>Federal Reserve Decision in the Spotlight</h2> Everyone's eyes are focused on this Federal Reserve today as it is the leader among central banks when it announces the decision on interest rates during the week. The majority of market participants expect an increase of 25 basis points by the Federal Open Market Committee (FOMC) on Wednesday. But the main focus will be the upcoming press conference where investors will be watching closely for the FOMC's Chairman Jerome Powell's comments on the likelihood of a second interest rate increase in the near future. Image of Latest US Federal Reserve rate cuts sources from Reuters<img src="https://cdn.forexoverflow.io/images/1690350277429-2ez7kgm8bx1oufa-us-federal-reserve-is-one-step-ahead-on-rate-cuts-1.png"> &nbsp; <h2>Implications for Global Markets</h2> The Federal Reserve's message will significantly impact the mood of markets in anticipation of the policy announcements coming from the European Central Bank (ECB) on Thursday and from the Bank of Japan (BOJ) on Friday. The ECB appears poised to give another modest hike, and the BOJ is predicted to continue its ultra-low policy setting. <h2>Company Earnings Reports in the United States</h2> Within the reports on company earnings to be released on Wednesday morning in the United States, Meta Platforms (META.O) is the most prominent. This list includes AT&amp;T (T.N), Thermo Fisher Scientific (TMO.N), U.S. railroad operator Union Pacific Corp (UNP.N), eBay (EBAY.O), Boeing (BA.N) along with Coca-Cola (KO.N). Interestingly the two companies, Microsoft as well as Alphabet, reported strong earnings following Tuesday's U.S. market close on Tuesday. <h2>European Companies Reporting Earnings</h2> In Europe, there are several businesses expected to announce their results. French-based retailer Carrefour and the worldwide food and beverage firm Danone (DANO.PA) include two of the list. Furthermore, GSK (GSK.L) and Stellantis (STLAM.MI) will publish their annual earnings reports. <h2>Economic Stimulus Measures in China</h2> Asian markets are watching closely for any details regarding new stimulus plans for the economy from China in the wake of the Politburo's announcement to increase assistance to the weak economy. Chinese market prices were down on Wednesday, following a dramatic increase the day prior. Hong Hong Kong's Hang Seng Index (.HSI) decreased 0.8 percent, while the tech and property subindexes followed. The blue chip China's CSI300 (.CSI300) index fell 0.3 percent, whereas its CSI 300 Real Estate index increased 0.2 percent. <h2>Australian CPI Data and Reserve Bank of Australia</h2> Australian Consumer Price Index (CPI) figures published on Wednesday showed the inflation rate was less than anticipated during the month of June. The result affected the Australian dollar. However, it allows Australia's Reserve Bank of Australia with a bit of breathing room prior to the next meeting of its policy committee beginning on August 1. <h2>Key Developments Influencing Markets on Wednesday</h2>﻿•&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;France's June Unemployment Data: A window into the ever-evolving landscape of the French job market, as we seek to unravel the employment trends and gain insights into the current economic climate.•&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Euro Zone's June M3 Annual Growth and Lending Data: A tapestry of figures that illuminates the monetary aggregates and lending activity within the Eurozone, offering a glimpse into the region's financial stability and liquidity.•&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;U.S. June New Home Sales: A chapter in the American real estate saga, where we witness the dynamics of new home sales, gauging the demand and trends that shape the housing market.•&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;U.S. Federal Reserve Announces Interest Rate Decision: An eagerly anticipated moment, where the Federal Reserve unveils its verdict on interest rates, a decision that ripples across the global financial landscape, impacting markets and businesses alike. Market Summary In the end, the markets for financial instruments are set to witness an eventful day thanks to an interest rate determination and the earnings report of prominent firms. Investors, as well as analysts, keep an eye on the outcome of these developments, which can significantly impact market dynamics in the upcoming days. In addition, the global economy could see additional impacts based on the policies put forth by the European Central Bank and the Bank of Japan in the weeks to come. It is important to stay informed and flexible in responding to the changes in the world will be essential for all market players.

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The morning market bid as investors eagerly anticipate the Fed's decision, with the central bank's announcement expected to influence trading sentiment.

Morning Bid: Markets on Edge for Fed Decision

Morning Bid: Markets Anticipate Fed Decision and Earnings Surge

•	*Experts believe the recent surge in inflation increases the likelihood of a rate hike by the Federal Reserve.*

•	*Some critics argue that this move by the Fed is not the right direction to take, as it further raises the odds of a rate hike.*

•	*Before the Federal Open Market Committee (FOMC) meeting, reports on employment and consumer prices are expected to be released.*

Further disappointing inflation news could potentially persuade Federal Reserve policymakers to raise interest rates once again. This would provide support for those who argue that more actions are necessary to restore price stability.

On Friday, figures from the Commerce Department revealed that the personal consumption expenditures price index, which is the Federal Reserve's preferred measure of inflation, increased by a faster-than-expected 0.4% in April.

Cleveland Fed President Loretta Mester expressed her belief in a CNBC interview on Friday that based on the inflation data, some tightening of monetary policy will likely be required. She mentioned that all possibilities are on the table for June.

Compared to the previous month, the measure has risen by 4.4% from a year ago, slightly higher than the 4.2% increase seen earlier. When excluding food and energy, the core PCE index, which is another inflation measure, rose by 0.4% compared to the previous month and 4.7% from April 2022.

Diane Swonk, chief economist at KPMG LLP, criticized the direction the Federal Reserve is taking, stating that a hike in July is now a possibility depending on resolving debt ceiling issues.

In an effort to control inflation, officials have raised rates by 5 percentage points over the past 14 months, surpassing their 2% target. Following a quarter-point increase earlier this month, the benchmark rate now stands within a target range of 5% to 5.25%. Fed Chair Jerome Powell mentioned that policymakers have the flexibility to observe the data and the evolving economic outlook.

Before the Federal Open Market Committee's next meeting on June 13-14, policymakers will receive additional information regarding employment and consumer prices. However, there may be hesitancy to raise rates as long as there is uncertainty surrounding the ongoing debt ceiling negotiations in Congress.

Nevertheless, investors have increased their bets on a rate hike in the upcoming month, with the likelihood rising to over 50% from 18% just a week ago. This shift reflects recent hawkish speeches from Fed officials and indications of economic strength. According to the report released on Friday, consumer spending, adjusted for prices, increased by 0.5%, marking the strongest growth since the beginning of the year. Treasury yields saw a surge following the report.

Kathy Bostjancic, chief economist at Nationwide Life Insurance Co., commented that the combination of rising inflation and robust consumer spending increases the chances of another rate hike in mid-June.

However, some Fed officials, such as Atlanta Fed's Raphael Bostic and Philadelphia's Patrick Harker, have emphasized that the impact of credit issues stemming from banking failures has yet to be felt. They also noted that monetary policy operates with a lag, meaning the full consequences of higher rates may not be seen in official data yet.

Derek Tang, an economist at LH Meyer/Monetary Policy Analytics, stated that it will take more to sway policymakers from pausing in June, but the possibility of another hike thereafter has increased. Tang's firm revised their peak rate forecast from 5.1% to 5.6% on Friday. He added that the stronger the data flow, the more likely it is for the next hike to occur in July rather than September.

"Persistence has its limits, and patience will wear thin if the economy continues to boom and bank stress does not worsen," Tang remarked.

Minutes from the May 2-3 meeting indicated that policymakers were uncertain about the extent of additional tightening needed, weighing the slower progress on inflation against the resilient labor market and the potential credit crunch resulting from recent banking turmoil.

Goldman Sachs economists, in a note on Friday, stated their expectation for the Fed to maintain steady rates in June. However, they acknowledged that the stronger-than-anticipated consumer spending and inflation data, along with the varied views among FOMC participants regarding the appropriate policy path, make the decision a close call.

In a statement on Friday, the International Monetary Fund (IMF) suggested that the Fed should raise interest rates by a quarter point to bring inflation back to 2%. The IMF also recommended that policymakers emphasize the need for rates to remain high for an extended period to align financial conditions with the intended policy trajectory, while highlighting that policy decisions will depend on incoming data.

Ethan Harris, head of global economics research at Bank of America Corp, noted that the Fed is clearly dependent on data in its decision-making process. In this uncertain environment, he added, every central bank, including the Fed, will be flexible in navigating the path forward.


•	*Experts believe the recent surge in inflation increases the likelihood of a rate hike by the Federal Reserve.*

•	*Some critics argue that this move by the Fed is not the right direction to take, a...

Inflation Flames Ignite: Fed Contemplates June/July Rate Hike to Tame the Heat!

Traders have already factored in an additional increase of a quarter-point in interest rates by the Federal Reserve in the next two policy meetings. There is a greater than 50% chance that this hike could occur as early as next month.

This change in expectations coincided with the rise in US yields. The two-year rate, which is sensitive to policy changes, increased by 15.7 basis points to reach 4.53%, the highest level since early March. During that time, US bank failures caused market turmoil and led to increased buying of government debt as a safe haven.

Yields at the short end of the curve have been rising for 10 consecutive trading sessions. The recent increase is driven by growing optimism about a potential debt-ceiling agreement and resilient economic data, which could pave the way for further tightening by the Federal Reserve.

The rate on swap contracts linked to the July meeting climbed to 5.37% on Thursday, more than 25 basis points above the current effective fed funds rate. However, it later settled at 5.34% in late New York trading.

Given that the Federal Reserve typically adjusts rates in multiples of 25 basis points, the market sees the possibility of a rate hike occurring either in July or at the Federal Open Market Committee's next meeting in June. The June contract indicates around 14 basis points priced in, suggesting a better than even chance of a hike taking place at that meeting.

Just a few weeks ago, after the central bank's tenth consecutive rate hike, the market was confident that there would be no further increases this year. In fact, there were expectations of up to three rate cuts by the end of the year due to concerns about regional bank failures and indications from some officials suggesting an impending recession.

However, these views have been overshadowed by concerns about persistently high global inflation and tight labor market conditions that have been prevalent earlier this year.

The fear of contagion in the banking system has diminished, and the turmoil surrounding the debt ceiling has not yet triggered significant demand for safe assets, which would push down expected rates.

"The market has been eager to anticipate a pause and even cuts, not necessarily as the most likely outcome, but more due to the risk of an unexpected event that would force the Fed to reverse its course sharply later this year," said Dominic Konstam, head of macro strategy at Mizuho Securities. "So any signs of stability naturally reduce the probability of such a risk materializing."

Federal Reserve officials have recently emphasized their intention to balance the forces of inflation and a strong job market with signs that the ten rate increases over the past 14 months, totaling 5 percentage points, are starting to create financial stress that justifies a pause in June.

Konstam believes that the Fed is unlikely to adopt rate cuts or completely abandon the possibility of further hikes. However, he suggests that currently they are leaning more towards a wait-and-see approach and a pause in June, rather than aggressively moving forward.

Contracts for future periods still indicate the need for rate cuts within the next year, but the anticipated extent of easing has decreased significantly. The swap rate for the December meeting is currently around 4.98%, up from a low of 4.20% earlier this month.

Another indicator suggesting a diminishing expectation of rate cuts in the near term is the narrowing inversion of the yield curve. The yield on the two-year Treasury note is now approximately 0.7 percentage points higher than the 10-year yield, compared to around 0.4 percentage points earlier this month.

The possibility of a renewed demand for Treasuries as a safe haven is also decreasing as Washington seeks to reach an agreement on raising the debt ceiling before the upcoming US holiday on Monday.

House Speaker McCarthy stated that progress had been made in debt-ceiling talks, with negotiators working past midnight on Wednesday. However, there are still unresolved issues, and efforts are being made to find a solution around the clock.

"The market assumes that there will be a debt limit deal without significant spending cuts," said Priya Misra, global head of rates strategy at TD Securities.

However, Misra added that a debt ceiling deal would likely come with spending cuts, which could negatively impact economic growth, in addition to the effects of rate hikes and tightening lending standards by banks. She suggests that the Federal Reserve may raise rates once more, but that would only increase the amount that the Fed would need to cut next year.


Traders have already factored in an additional increase of a quarter-point in interest rates by the Federal Reserve in the next two policy meetings. There is a greater than 50% chance that this hike c...

Fed Traders Set the Stage for an Interest-Rate Hike - What You Need to Know

Despite ongoing discussions about the future of interest rates, the Federal Reserve Governor expressed the view that the rate hikes will continue. He emphasized that the conclusion of the rate hiking cycle is not imminent.

The Governor highlighted the importance of maintaining prudent risk management. While it is possible that a rate hike may be skipped during an upcoming meeting, the inclination is towards implementing a hike in the near future, particularly based on incoming inflation data.

The Governor also pointed out concerns regarding the tight labor market, which continues to outperform expectations by adding more jobs than anticipated. This situation has led to upward pressure on wages, contributing to an inflation rate that currently exceeds the Federal Reserve's target of 2%.

The decision regarding rate hikes will ultimately depend on the data received in the coming weeks. However, based on the Governor's remarks, it is clear that the rate hiking process is expected to continue.


Despite ongoing discussions about the future of interest rates, the Federal Reserve Governor expressed the view that the rate hikes will continue. He emphasized that the conclusion of the rate hiking ...

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4 articles published related to#federal open market committee

Morning Bid: Markets Anticipate Fed Decision and Earnings Su...

Inflation Flames Ignite: Fed Contemplates June/July Rate Hik...

Fed Traders Set the Stage for an Interest-Rate Hike - What Y...

The Federal Reserve Governor believes that the process of ra...

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