SAFAKNA TURKEY – Although this week will be very critical for the markets, all eyes will be on central banks. Tomorrow Thursday, the US Federal Reserve System (FRS), the European Central Bank (ECB) and the Bank of England (BOE) will announce their interest rate decisions. In addition, US inflation data for November, which is one of the most important data for the markets, will be released today.
Inflation in the US will be determined today at 16:30 Turkish time. Economists expect annual inflation to fall from 7.7% to 7.3%; fall to 0.3 percent per month… Core inflation is 6.1 percent year on year; On a monthly basis, it is estimated at 0.3 percent. Market participants are more closely monitoring core inflation than headline inflation. Inflation data is critical because it is one of the two most important data the Fed looks at when making a rate decision. If the inflation data to be announced today comes as a surprise, it is expected to influence messages that may come from the Fed tomorrow.
Core inflation stands out more because it shows us the domestic rate of price growth that will be reflected in the future.
LOOKING AT CENTRAL BANKS
The meeting on the interests of the Fed, the leading player in the world markets, began today and will end tomorrow. The Fed will announce its interest rate decision tomorrow at 22:00 Turkish time. Fed Chairman Jerome Powell’s press release will begin at 10:30 pm. Looking at market prices, the Fed is expected to put its rate hike on hold and raise it by 50 basis points at this meeting. The Fed has raised interest rates by 75 basis points in the last 4 meetings.
The Fed’s post-meeting statements and advice on upcoming meetings in President Powell’s speech will be very important. The statements will be sought for messages regarding economic forecasts that the Fed may implement in the future.
Considering market pricing, the expectation that the Fed will raise interest rates to 5.00-5.25% in the next 3 meetings is significant.
HOW CAN MARKETS REACT?
If the US inflation data matches the market expectations, no sharp movements are expected in the markets, since the pricing was done in advance. However, in case of unexpected data, the markets may experience volatility. If the data turns out to be higher than expected, the risk appetite may decrease, and quotes of global stock indices may turn negative. In addition, we can expect that further strengthening of the dollar in the world, the growth of US bond yields and the inverse correlation effect will increase pressure on gold and silver prices. If the data falls short of economists’ expectations, markets could see the opposite effect.
If hawkish messages are sent after the Fed interest rate meeting, it is expected to have a negative impact on the market, and if dovish messages are received, it is expected to have a positive effect on the markets.
MONETARY POLICY FOR 2023 WILL BE THIS WEEK
Murat Ozoy – founder of Biz Financial Consulting
On the global macro data agenda this week, especially today, Wednesday and Thursday are extremely important. Today we are facing US inflation data for November and just after Wednesday, after the US Federal Reserve (Fed) announced its interest rate decision, we will turn our attention to the European Central Bank (ECB) interest rate decision on Thursday .
The main expectation of November inflation in the US, which will be announced today, is a slowdown in both annual and monthly growth rates compared to October. The fact that the data is flowing in this direction will relieve the Fed’s hand. Even after the Fed’s rate decision on Wednesday, Chairman Powell’s speech may have a softer tone than in previous meetings with a series of 75 basis points (bp) hikes. Another important aspect of this meeting is that the Fed will publish economic forecasts. I recommend following it, especially to see if the forecasts are revised down.
25 BASE POINTS CAN START THE PRICE
In addition, if we see an expected slowdown in Thursday’s retail sales data, markets could begin pricing the Fed’s rate hike decision on Feb. 1, 2023 at basically 25bps.
If we see that this basic scenario for Tuesday and Wednesday works, then with a high degree of probability, the positive dynamics of the US stock market indices will be on the agenda. When we look at EUR/USD parity, the weekly rate may be in favor of the EUR. If ECB President Lagarde takes a more cautious stance on fighting inflation following an expected 50 basis point ECB interest rate hike on Thursday, the euro is more likely to appreciate against the dollar. I think that these events will also affect domestic markets in parallel.
I think we will see the first direct impact of these events on the ounce of gold after the Fed meeting on Wednesday. Especially in Powell’s speech, if the perception of 25 basis points is assessed at the Fed meeting in February, we could see a move towards $1,800 in gold and $24 in silver an ounce. On the other hand, since I don’t yet foresee a deterioration in TL’s horizontal movement against the US dollar, it is unlikely that we will see a similar effect in gram gold and gram silver.
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