Market Update

This week, the Reserve Bank of Australia (RBA) and the Bank of Canada (BoC) caught markets off-guard by raising their interest rates. Both institutions felt prior monetary policies weren't tight enough to strike a balance between supply and demand and attain the desired 2% inflation target. These unanticipated moves stirred speculations that higher interest rates might persist longer than anticipated.
The U.S. Federal Reserve is set to wrap up its upcoming session on Wednesday, 14 June. The general consensus predicts that the Fed will keep its benchmark interest rate steady at 5.00% to 5.25%. If this holds true, it would break the pattern of ten consecutive sessions with rate hikes, offering a lift to both equity and bond markets. Should June witness no rate changes, all eyes will be on potential clues from the Fed about resuming hikes in their meeting that concludes on 26 July 2023.
Remarkably, despite the Fed's most assertive series of rate hikes since the 1980s, the US economy has shown considerable resilience. Buoyed lately by tech equities, the S&P 500 has seen a commendable 20% surge since its October trough, a level frequently linked to a bull market's onset. While sectors like housing have slowed and manufacturing grapples with hurdles, the bedrock of the economy, consumer spending, has managed to stand tall against rising costs and interest rates. Such fortitude can be credited to vigorous job generation and ascending incomes, which have buttressed consumer expenditure.
Key events on the horizon, namely the imminent CPI data release and policy meeting, are set to be influential in shaping equity market assessments and will likely set the stage for the upcoming summer months. An anticipated drop in inflation might assuage the jitters triggered by the unexpected rate increments by the RBA and BoC.
Over in Europe, fresh data revealed an unanticipated 0.1% quarter-on-quarter shrinkage in the first three months of 2023, overturning preliminary projections of a slight 0.1% uptick. Amended numbers for the closing quarter of 2022 point to a 0.1% decrease, replacing the previously assumed flat trajectory. This suggests that the Eurozone has now slid into a mild technical recession, propelled by soaring inflation and rising borrowing expenses. Nonetheless, with the backdrop of a decelerating economy, the European Central Bank is anticipated to notch up interest rates by 25 basis points on Thursday, 15 June, followed by another increase in July. They are then expected to hold steady for the remainder of the year in the face of persistent inflation.