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LGT Navigator: Federal Reserve remains undeterred

October 13, 2022

The Federal Reserve is sticking to its tight monetary policy. New data on inflation trends in the US today will provide clues as to whether the fight against inflation is proving successful. On the British bond market, turbulence is increasing again shortly before the end of the emergency purchase program. 

International Monetary Fund

US Stock markets continued to slide on Wednesday after the Federal Reserve once again reaffirmed its restrictive monetary policy course. Thus, the minutes of the last meeting show that the Fed board wants to raise key interest rates further to fight inflation. Financial markets consider it to be virtually certain that monetary authorities will raise rates by a further 75 basis points in November. However, this also increases the risk of stalling the economy. 

The S&P 500 fell on Wednesday -0.3%. The Dow Jones and the Nasdaq Composite lost -0.1% each. Asian stock markets are lower on Thursday. In Tokyo, the Nikkei trades -0.5% weaker. The Hang Seng loses more than -1% in Hong Kong and the Shanghai Composite is down -0.1%.

Today, investors await fresh US inflation data for September. Analysts expect consumer prices to have climbed by +8.1% year-on-year, following an increase of +8.3% in August.

Turbulence on British bond market flares up again

In the United Kingdom, the sell-off in British government bonds (gilts) continued on Wednesday after the Bank of England (BoE) reiterated that it will end its program of bond purchase on Friday as planned. Yields on thirty-year gilts climbed above 5% for the first time since the end of September – at the time, the sharp rise in yields and the devaluation of the British pound had prompted the BoE to intervene in the bond market and launch the emergency purchase program. This was intended to secure the liquidity of pension funds, some of which are struggling to cope with the severe turmoil on the bond market: at the beginning of the year, thirty-year gilts were still yielding around 1.1%. 

The market turmoil was triggered by the surprise announcement by the government in London that it would cut taxes, which is likely to fuel debt. At the end of October, British Finance Minister Kwasi Kwarteng wants to show how government debt can be reduced in the medium-term. However, Prime Minister Liz Truss has already announced that the government will not reduce spending.

US producer prices rise strongly

In the US, growth in producer prices slowed in September but remained at a high level. Thus, producer prices climbed +8.5% year-on-year, as reported by the Labor Department on Wednesday in Washington. In August, the growth rate stood at +8.7%. Excluding volatile energy and food prices, prices rose +7.2%, at the same pace as the previous month. Producer prices influence consumer prices as producers might pass on rising costs to consumers. 

Opec lowers demand forecast

Global demand for oil is likely to be lower than expected this and next year. This is the conclusion reached by the Organization of Petroleum Exporting Countries (Opec) in its latest market report. According to the report, high inflation, rising interest rates and problems in supply chains are weighing on global economic development. Opec is therefore lowering its demand forecast for the fourth quarter by almost 800’000 barrels to 101.6 million barrels per day. For 2023, the oil cartel forecasts average daily demand of 102 million barrels. This is around 700’000 barrels less than previously expected. Opec and its allied countries (Opec+) already decided last week to cut the agreed production volume from November. 


Economic Indicators October 13

MEZ Country Indicator Last period
08:00 GE Consumer price index (September, y/y) +10.0%
08:30 CH Producer price index (September, m/m) -0.1%
14:30 US Consumer price index (September, y/y) +8.3%


Earnings Calender October 13

Country Company Period
CH VAT Q3 (trading update)
US Blackrock Q3
US Delta Air Lines Q3
US Walgreens Boots Alliance Q3


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