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LGT Navigator: Fed reaffirms prospect of imminent interest rate turnaround

February 17, 2022

The Federal Reserve (Fed) made it clear once again in the minutes (FOMC Minutes) of its last monetary policy decision on January 26, published yesterday evening, that an interest rate turnaround is to be expected at the next meeting in March. Capital markets are currently expecting up to seven interest rate hikes in this year.

Fed reaffirms prospect of imminent interest rate turnaround

At its next monetary policy meeting on March 16, the US central bank will raise the key interest rate again for the first time, thus initiating the turnaround in interest rates following the corona crisis in the United States. The minutes of the last interest rate decision emphasized that it will be appropriate to raise the key interest rate, which is at the zero line currently. The Fed referred to the high inflation as well as to the robust labor market and future inflation risks. Uncertainty about inflation developments is generally high and inflation risks are clearly pointing upward, the central bank reiterated. Furthermore, the Fed sees a reduction of the balance sheet – currently around USD 9 trillion – as justified.

On Wall Street, the central bank minutes no longer caused a big surprise and the stock indices could almost recover their initial losses by the end. The Dow Jones Industrial ended Wednesday trading -0.16% lower at 34'934.27 points and the S&P 500 closed at 4'475.01 points, +0.09% higher. Also, on the technology exchange Nasdaq no big jumps were observed yesterday.

Munich Security Conference under the spell of the Ukraine conflict

On the sidelines of the Munich Security Conference, foreign ministers of the G7 countries want to discuss the situation in Ukraine and the confrontation with Russia anew over the weekend. Led by German Chancellor Olaf Scholz, US Vice President Kamala Harris will be joined by Ukrainian President Volodymyr Selenskyj. Russia, however, is staying away from the security policy meeting for the first time in many years.

Meanwhile, the White House continues to see no signs of a withdrawal of Russian forces on the border with Ukraine. This after Moscow had previously announced it would withdraw its troops from the Ukrainian border again after the maneuvers. “What Russia says is one thing. What Russia does is another,” US Secretary of State Antony Blinken opined. NATO also remains skeptical and warned that Russia was continuing its troop buildup in the border area, contrary to what it had announced.

US retailers with strong start to the year

After an extremely weak previous month, retail sales in the US recovered more strongly than expected at the beginning of the year. While retail sales slumped by a revised -2.5% in December (first estimate -1.9%), the sector posted sales growth of +3.8% in January. On average, analysts had expected growth of +2.0%.

Inflation in the UK at a 30-year high

UK consumer prices rose +5.5% year-on-year in January, taking inflation to its highest level since March 1992. Economists had expected a slightly lower inflation rate of +5.4%. The core rate, i.e. excluding the sharp rise in energy prices, was +4.4% compared with +4.2% in December. After the fourth consecutive increase in annual inflation, the Bank of England is likely to remain under pressure to tighten its monetary policy further or to raise interest rates again. At present, the central bank expects the inflation rate to rise further to more than seven percent.

Industrial production in the eurozone stronger than expected at the end of 2021

Industry in the euro zone produced more than forecast in December. On a month-on-month basis, output rose by +1.2%, while analysts had expected an average increase of +0.3%. In 2021, industrial production in the eurozone increased by +7.8% compared with 2020.

  

Economic Indicators February 17

MEZ Country Indicator Last period
10:00 EZ ECB Monthly Bulletin 
14:30 US Housing Starts (January, m/m) +1.4%
14:30 US Building Permits +9.8%
14:30 US Initial Jobless Claims (weekly) 223,000
14:30 US Philly Fed Manufacturing (February) +28.7

 

Earnings Calender February 17

Country Company Period
SZ Nestlé Annual
FR Kering Annual
FR Schneider Electric Annual
FR Air France-KLM Annual
FR Lagardere  Annual
UK Reckitt Benckiser Annual
UK Standard Chartered Annual
ESP Repsol Q4
US Walmart Q4

 

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi, E-Mail: lgt.navigator@lgt.com
Source: LGT Bank (Switzerland) Ltd.

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