Market Update

The central focus for global financial markets this week revolved around the Federal Reserve's monetary policy meeting, and as expected, the central bank raised US interest rates by 0.75%.
However, what truly captured our attention were the remarks made by Jay Powell during the accompanying press conference – and we were not disappointed; in fact, it exceeded our expectations.
The Fed chair acknowledged that the US economy was slowing down and emphasized that another "significant" interest rate hike would only occur if there were no signs of inflation slowing.
Even more noteworthy, Jay Powell recognized that the full impact of the Fed's previous interest rate increases had not yet materialized. This acknowledgment clearly underscores the Fed's intention not to be seen as acting recklessly, akin to what Milton Friedman termed 'the fools-in-the-shower.' In this analogy, someone turns the hot water all the way up, unaware that the initially cold water will eventually become scalding, leading to discomfort. In essence, policymakers aim to avoid aggressively increasing interest rates without considering the consequences of their previous hikes.
Furthermore, the next Fed meeting is scheduled for September 21, 2022. Not only does this date approach the mid-term elections on November 8, but it also falls within a timeframe when we can expect a plethora of critical economic data releases. These include two readings each of CPI inflation and US employment figures, in addition to PMI data, retail sales data, and various economic and manufacturing surveys – all of which should begin to reveal the impact of the Fed's 2.25% interest rate increase thus far in the year.
In other economic news, recent US data, released on July 28, 2022, indicated that the US economy had contracted for a second consecutive quarter. Meanwhile, the quarterly core PCE (personal consumption expenditures price index, which excludes volatile items like food and energy and is the Fed's preferred inflation measure) grew at an annualized rate of 4.4%, a notable drop from the previous quarter's annualized growth of 5.2%.
These developments lead us to believe that the Fed is highly likely to scale back its interest rate increases much sooner than what current financial markets are anticipating and pricing in. This, in turn, bodes well for global equity markets.
Looking ahead to the upcoming week, we can expect data releases such as US ISM figures, US employment data (including non-farm payrolls, unemployment rate, participation rate, and average earnings), US factory orders, Eurozone retail sales, Eurozone PPI data, and Chinese PMI figures.
Additionally, in the UK, Bank of England policymakers will convene to discuss UK interest rates. Markets are anticipating, and have consequently factored in, an increase of 0.5% to 1.75% – potentially marking the largest increase since February 1997.