In the run-up to the landmark decision of the Federal Reserve today at 20:00 (CET), the Dow Jones Industrial declined on Tuesday by -0.3% to 35'544.18 points and the S&P 500 fell back by -0.75% to 4'634.09 points. The losses were even heavier in the interest rate-sensitive technology stocks. On the Nasdaq, the indices fell in the meantime by more than -2% and closed around -1% lower than the previous day. The background is the expectation that the Fed will accelerate the already started withdrawal (tapering) of quantitative measures (QE) in view of the strong inflationary pressure and thus could also initiate a faster turnaround in interest rates. This would hit the growth-oriented technology sector, which is dependent on favorable financing conditions, particularly hard. A similar picture emerged on Asia's stock markets on Wednesday morning, and equity markets in Europe are also likely to be characterized by caution ahead of the Fed's decision.
The Fed's updated forecasts for economic, inflation and interest rate developments could signal an earlier and stronger increase in the key interest rate, which would mean that the first interest rate steps could be expected as early as mid-2022.
In the US, prices at producer level rose stonger than expected in November. On an annual basis, producer prices increased by +9.6%, registering the highest rate of increase since the data series began in 2010. Compared with the previous month, the price level rose by +0.8% (consensus +0.5%). Also worth noting is the increase in the core rate, i.e. excluding energy prices, which amounted to +6.9% on an annual basis and +0.7% on a monthly basis (consensus +0.4%). Producer prices are partially incorporated into consumer prices with a lag.
The Munich-based economic research institute Ifo has revised its economic forecasts downward in view of the ongoing supply bottlenecks and the fourth corona wave. According to Ifo's assessment, the German economy will grow by an average of +3.7% in 2022. The forecast is thus significantly lower than the +5.1% predicted in the fall. On the other hand, the economic recovery should simply be postponed for the reasons mentioned, and accordingly stronger growth of +2.9% (previously +1.5%) is now forecast for 2023. The Ifo left its forecast for the current year at +2.5%. Ifo President Clemens Fuest stressed that the measures against the pandemic would not burden the economy, but on the contrary protect it because they would shorten the crisis and make it safer to consume. Abandoning the rules would make the economic situation even worse.
Regarding the inflation trend, Ifo expects an inflation rate of +3.1% in the current year and an increase to +3.3% next year. However, the economic experts expect inflation to fall as early as 2022 and then to return to a much more moderate rate of +1.8% in 2023.
|08:00||UK||Consumer Prices (November, y/y)||+4.2%|
|08:00||UK||Producer Prices (November, y/y)||+8.0%|
|09:00||ESP||Consumer Prices (November, y/y)||+5.6%|
|10:00||IT||Consumer Prices (November, y/y)||+4.0%|
|14:30||US||Retail Sales (November, m/m)||+1.7%|
|14:30||US||NY Fed Empire State Manufacturing (December)||+30.9|
|20:00||US||FOMC monetary policy announcement||0.0-0.25%|
|20:00||US||Fed Economic and Monetary Forecasts|
|20:30||US||Fed Press Conference|
|DK||Vestas||Capital Markets Day|
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Source: LGT Bank (Switzerland) Ltd.
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