The past six weeks have turned the investing world on its head, leaving market participants in a state of suspense regarding the future of U.S. monetary policy and the ripple effects it may have on financial markets. As the Federal Reserve prepares to keep its policy interest rates on hold, all eyes are on Chairman Jerome Powell to offer some clarity.
As we move through the second half of 2023, the global stock markets seem to be caught in a difficult situation. With the U.S. Federal Reserve’s unwavering stance on high interest rates and China’s faltering economic indicators, investors are sailing through choppy waters.
This week, investors’ attention is fixated on the actions of central banks, particularly the Federal Reserve and the European Central Bank (ECB). The backdrop to this anticipation has been set by the unexpected rate hikes from the Reserve Bank of Australia and the Bank of Canada, which occurred last week. These moves, contrary to the prevailing consensus, have not only sent ripples through the financial markets, but also reshaped the discourse around the durability of current interest rates. The financial community is now confronting the stark realisation that the much-anticipated rate cuts may not materialise this year, and possibly might not surface until well into the next year.
The prolonged period of low interest rates has led to banks operating in a certain way, and now that rates are rising, certain banks are finding it difficult to adjust. This was highlighted by the recent announcement from Silicon Valley Bank (SVB) that it is insolvent.
Welcome to this week’s publication where we’ll be analysing the USTECH100 index. Last week was particularly volatile for the stock market, with the index dropping more than 700 points since the start of the month on fears that the Federal Reserve would be more aggressive in its tightening of monetary policy. These fears were prompted by the release of the minutes from the Fed’s January meeting, which revealed that some policymakers were considering raising interest rates by 50 bps due to concerns about rising inflation. As a result, investors are now closely watching the Fed’s next moves and any indications of when and how it might adjust its policies.