'Super Central Bank Week' Kicks Off: Federal Reserve Expected to Hold Steady, December Rate-Hike Clues in Focus — BigGo Finance

This week marks a significant period for global financial markets as they prepare for a series of critical rate decisions and earnings reports. The Federal Reserve is scheduled to announce its latest interest rate decision early Thursday morning, Beijing time. Market analysts largely anticipate that the federal funds rate will remain unchanged. However, attention will be focused on the remarks from Fed Chair Kevin Warsh during the post-meeting press conference, where investors hope to glean insights regarding potential rate increases in December.

Using the FedWatch tool, traders currently assign a 90% likelihood that the Federal Reserve will maintain its current rate, with only a 10% chance of a 25-basis-point hike this week. Nevertheless, expectations for a rate increase in December have risen, with money markets indicating a potential for two hikes before April of the following year. This outlook is supported by recent statements from prominent Fed officials, including Philip Jefferson, Michelle Bowman, and Christopher Waller, who have indicated that while another hike is feasible, there is no pressing need for one at this time. ING economist James Knightley noted that the prevailing consensus among market participants and economists is that the upcoming meeting will conclude with a "hold" decision.

On the day following the Fed's announcement, key economic indicators will be released, including the preliminary estimate of the US gross domestic product for the third quarter and the Fed's preferred measure of inflation, the September Personal Consumption Expenditures (PCE) price index. Expectations are that the core PCE will show a month-on-month increase of 0.3%, up from 0.2% previously, and a year-on-year rise to 3.1%, compared to 3% earlier. The headline PCE is forecasted to rise 0.5% month-on-month, up from 0.3%, while year-on-year figures are expected to climb to 3.6%, compared to 3.4%. Additional reports on September durable goods orders, the October consumer confidence index, September new home sales, and weekly jobless claims will also be released throughout the week.

Meanwhile, the European Central Bank (ECB) will announce its rate decision on Thursday, with predictions suggesting the deposit rate will remain at 2.50%. Concerns regarding France's sovereign bonds have intensified, as yields have surged due to budget and debt-related issues. Last week, the 10-year French government bond yield rose nearly 27 basis points, marking the largest increase among major eurozone countries, alongside a rise in its debt risk premium to levels not seen since the 2011 eurozone sovereign debt crisis. Analysts from Morgan Stanley noted that there is currently no evidence suggesting that a second energy shock would have a substantial indirect impact on inflation, and rising long-term bond yields have contributed to further tightening, reducing the urgency for a rate hike this week. They suggest that December would be a more appropriate time for any policy adjustments.

The Bank of Japan (BOJ) is set to announce its rate decision and provide its economic outlook report on Friday. Reports from Nikkei Asia indicate that the BOJ is likely to maintain its policy rate at 1.25%, having increased rates by 25 basis points just last month.

This week also marks a busy period for earnings reports in the United States, with approximately one-third of the S&P 500 companies expected to disclose their results. Alphabet and Microsoft will report on Thursday, followed by Amazon and Intel on Friday. Investors are particularly focused on growth in cloud computing, the impact of artificial intelligence on revenue, and the returns on capital expenditures related to data centers. The semiconductor supply chain will also be a key area of interest, especially concerning demand for memory products and pricing trends from companies like SK Hynix, Samsung Electronics, and SanDisk.

In Hong Kong, HSBC Holdings will announce its third-quarter results on Tuesday, with state-owned banks China Construction Bank and Industrial and Commercial Bank of China set to report on Friday.

Last week, US stock markets showed mixed results, with the S&P 500 declining by 0.47% and the Nasdaq falling by 0.71%, while the Dow Jones Industrial Average saw a slight increase of 0.41%. The University of Michigan's consumer confidence index for October dropped for the third consecutive month, impacting risk appetite and prompting investors to reduce their exposure to risk assets. Defensive sectors such as utilities and healthcare also experienced declines. In Europe, major indices fell, with the UK's FTSE 100 down 1.76%, Germany's DAX 30 down 1.72%, and France's CAC 40 down 2.19%.

Crude oil emerged as a standout asset last week, with geopolitical tensions in the Persian Gulf, particularly from Yemen's Houthi forces targeting Saudi oil facilities, raising concerns about supply. New York crude prices rose by 1.83% to $103.27 per barrel, while Brent crude surged 6.24% to $116.72 per barrel. Zahir Anwari, founder of The Revacy Fund, commented that the recent recovery in Gulf oil exports provided some market reassurance, but ongoing disruptions in shipping and elevated freight costs continue to pose risks.

As energy prices rise, inflation fears have intensified, reinforcing expectations that the Federal Reserve will maintain high rates, leading to a decline in precious metals prices. COMEX gold futures dropped by 4.05% to $3,991.10 per ounce, while silver futures fell by 5.76% to $53.71 per ounce.

This week, the primary focus for investors will not be on whether the Fed will maintain its current rate, which is seen as highly probable, but rather on how Warsh characterizes the current conditions of inflation and employment and the strength of any hints regarding December's policy actions. A hawkish tone in the press conference could bolster Treasury yields and the dollar, while negatively impacting gold and silver prices, which are already under pressure.