Federal 11 interest rate findings are about to be released, and Wall Street speculates what combination of interest rate resolution and Fed Chairman Powell's statement after the meeting will be.
JPMorgan analyst Andrew Tyler deduced six possible scenarios, as well as possible reactions to U.S. stock . The bank expects that under the most pessimistic situation, the S&P 500 index will fall 6% to 8% after the Fed rate rating in November, and in the most optimistic situation, it will soar 10% in a single day, but the probability of both possibilities occur is extremely low.
Six scenarios
Taylor deduces the following six situations.
Situation 1: 50 basis points rate hike and dovish statements. JPMorgan Chase believes that considering the high inflation and the tight employment market, it is hard to imagine that such a result will occur. However, once it happens, US stocks may rise sharply, bringing double-digit single-day returns to the stock market, and the S&P 500 will soar 10% to 12% in one day.
Scenario 2: 50 basis points rate hike and hawkish statements. JPMorgan Chase wrote that while the Federal Reserve is balancing inflation and growth, it is increasingly paying attention to financial stability, so this situation will occur, with the S&P 500 rising 4% to 5%.
Situation 3: 75 basis points rate hike and dovish statements. JPMorgan believes that this situation has the second highest possibility, "if the Fed gives clear guidance to the December meeting, then this may be regarded as a dovish result." Based on this situation, the S&P 500 is expected to rise 2.5% to 3%.
Situation 4: 75 basis points rate hike and hawkish statements. "Powell may retain the option of meetings in December and 2023, while emphasizing the current risk of upward inflation, which is the most likely situation." JPMorgan Chase said that this result seems to be the most anticipated by the bond market. Under this situation, the S&P 500 index is not expected to fluctuate too much, and the trading range will be between -1% and 0.5%.
Situation 5: 100 basis points rate hike and dovish statements. JPMorgan Chase said that although the outside world believes that this is unlikely, this move may mean that the Fed hopes to raise the terminal interest rate while completing the tightening cycle this year. Under this situation, the S&P 500 will fall by 4% to 5%.
Situation 6: 100 basis points rate hike and hawkish statements. This is considered the best result for stock market bears waiting for this round of rebound to stop. "This situation may indicate that the Fed is reevaluating its inflation forecast, and some investors believe the Fed was too optimistic before." Under this situation, the S&P 500 index is expected to fall 6% to 8%, staying at its lows this year.
How do you view Wall Street?
NYSE trader Timothy Anderson believes that situation three and situation four have higher possibilities. In an interview with First Financial reporter, he said: "The US stock market rose rapidly in October because investors are looking forward to softening their monetary stance. Therefore, the latest statement of the Federal Reserve and Powell's post-meeting statement must be quite moderate in order to rationalize the sharp rise in the market." He expected that the Federal Reserve may suggest on the 2nd that it will reduce the interest rate hike to 50 basis points or even 25 basis points from December. However, on the other hand, the policy effect has not been shown for a long time, and the high global inflation has not made it difficult for the Federal Reserve to release its brakes.
At the same time, Anderson believes that there is obvious technical resistance at the S&P 500 index at the 3900 point level. "Only when inflation reports and other economic data are very favorable, we can expect to break through 3,900 points. However, the latest inflation report in euro released earlier has shattered hopes," he said.
On October 31, local time, the European Statistics Office released the latest data. The inflation rate in the euro zone hit a new high in October, and the consumer price index (CPI) rose 10.7% year-on-year, indicating that the impact of energy crisis on inflation in European countries continues.
. According to the inflation prediction model of the Cleveland Fed in the United States, the year-on-year growth rate of US CPI in October was expected to be 8.09%, and the year-on-year growth rate of core CPI was expected to be 6.58%, which is not much different from the data in September.
Montreal Bank Ian Lyngen, head of US interest rate strategy, tends to be the fourth case.He told the First Financial reporter that there has been no convincing evidence in the past week, which is enough to make the Fed give up its hawkish promise. "There is no suspense to add 75 basis points tomorrow. Intuitively, Fed officials will be forced to explain the reasons for such a magnitude, so consistent with the past few meetings, the Fed's tone will be hawkish." He said that as interest rates rise, more signs highlight the anxiety of American businesses and families, which is exactly what the Fed wants to see, further strengthening its intention to keep interest rates at higher levels for longer periods of time.
Lingen believes that it is necessary to defend the hawkish position that in this round of interest rate hike cycle, the stubbornness of core inflation is far more severe than the Fed's initial expectations. He expects that investors are likely to hear the statement that “future policies will rely on data and maintain flexibility”.
Standard Chartered North American macro strategy Steve Englander told Caixin that compared to the necessity of conveying the policy shift, the Federal Reserve is more likely to disclose that it will give the economy a certain time to catch up with changes in monetary policy . "We expect the Fed to use more neutral words to describe the code reduction and emphasize the need to evaluate the impact of interest rates so far. Interest rates may rise, fall or sideways, which will depend on the reaction of the economy and inflation." Standard Chartered expects the Fed to announce a 75 basis point rate hike, cut the rate hike to 50 basis points in December, and further slowed to a 25 basis point rate hike in January 2023.
