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Markets to shift the focus to key central bank meetings next week

  • Fed to be more hawkish in their language? Potentially line up quicker tapering/rate hikes?
  • ECB to keep ‘transitory’ language? Any guidance on APP purchases for next year?
  • BOE to hike rates this time around?
  • SNB.. Meh

Omicron aside, there are plenty of things to digest just from that to pique interest in markets. I’ve shared some thoughts for stocks yesterday here and why Pfizer’s news may not be a straightforward play.

As the week slowly winds down, we’re moving past that checkpoint highlighted above so the next few sessions may be a more lacking in a sense when trying to figure out any firm direction. That is unless we get more virus headlines.

Morgan Stanley forecast 5 Federal Reserve rate hikes ahead

Morgan Stanley project a rate hike from the Federal Open Market Committee in September and December 2022

  • followed up by another three hikes in 2023
  • “We now expect the FOMC to begin raising interest rates in September next year, two quarters earlier than previously anticipated.”

Morgan Stanley and JPMorgan are looking for a lift off in September while Goldman Sachs are tipping June (also tipping June are Deutsche and BoAmerica analysts).

US official says discussions are likely on destroying Iranian nuclear facilities

A US official tells Reuters that there will be discussion on possible military exercises that would prepare for a worst-case scenario to destroy Iran’s nuclear facilities should diplomacy fail. In order to prevent Iran from developing nuclear weapons.

Speculations such as this should provide a tailwind for oil, at the margin.

  • The U.S.-Israeli preparations, which have not been previously reported, underscore Western concern about difficult nuclear talks with Iran

Survey shows analysts are moving Fed rate hike expectations even earlier

  • Reuters with the polling, analysts shifting their Federal Reserve rate hike projections to Q3 2022 from Q4 in the survey for the previous month,

30 of the 36 economists asked say they now expect the Fed ‘lift-off’ rate hike to come earleir than they had previously projected.

  • in Q3 2021 from Q4 previously thought.

Most thought there is a risk of even sooner than Q3.

Citing:

  • persistently higher inflation

But wary of once again rising COVID-19 cases globally and the Omicron mutant.

Further out:

  • three more hikes – in Q4 next year and Q1 and Q2 of 2023. The fed funds rate was expected to reach 1.25-1.50% by end-2023.

Brazil’s central bank has raised its benchmark rate by 1.5% to 9.25%, as expected

  • decision was unanimous
  • baseline scenario and balance of risks indicate it is appropriate for interest rate hike cycle to advance significantly into the restrictive territory
  • will persevere with its strategy until consolidating both disinflation and the anchoring of expectations around its targets
  • recent doubts about fiscal framework raised the risk of deanchoring inflation expectations
  • growth indicators released since the last meeting show an evolution slightly below expectations for brazilian economy
  • consumer inflation remains high, price increases were higher than expected, both in the more volatile components and on the items associated with core inflation
  • possibility of a winter covid-19 wave and the emergence of the omicron variant add uncertainty about the pace of recovery in advanced economies

Major indices close higher for the third consecutive day NASDAQ leads the way to the upside. Russell 2000 also strong

The major indices closed higher for the third consecutive day.

  • NASDAQ was the strongest of the three major indices
  • Dow Jones recovered from earlier losses with buying into the close
  • Russell 2000 of small-cap stocks was the biggest percentage gainer
  • NASDAQ index 1.65% away from a record close
  • S&P index only 3.3 points away from an all-time high close

Risk rebounds as Pfizer reveals a third dose of their vaccine neutralises omicron variant

European stocks are bouncing back to positive territory while US futures have soared on the Pfizer news here.

S&P 500 futures had earlier pared gains of around 0.4% to flat levels but are now up 0.5% on the day. Meanwhile, Treasury yields looked heavy after news of further imminent UK virus measures but have bounced back strongly.

10-year yields were down to 1.43% but have pared that drop to 1.47% now. In the meantime, 2-year yields are keeping their focus well on the Fed and rate hikes in a climb to 0.70%:

Limited data availability making it tough to assess omicron severity, says WHO

  • WHO says it needs more data to assess omicron mutations and its impact on vaccine efficacy

Sort of stating the obvious as this is the question that the world is waiting on at the moment. Vaccine makers are only likely to share some of their own findings in the next week or two. So, expect the WHO to trail behind that as per their standard operating procedure during the pandemic.

Japan Q3 GDP (second reading) -0.9% q/q vs -0.8% expected

Japan GDP chart Q3 2021

Japan’s economy contracted in Q3 on covid disruptions in a sign that it will be long struggle to ever raise interest rates.

  • GDP annualized -3.6% vs -3.1% expected (first estimate was -3.0%)
  • Private consumption -1.3% vs -1.1% prelim
  • External demand 0.0% vs +0.1% prelim
  • Inflation deflator vs -1.1% prelim
  • Capex -2.3% vs -3.9% expected

This isn’t a great slate of data but at least there were some better capex numbers. Indications are that private consumption rebounded in October/November but omicron will add a fresh reason to stay home.

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