FPG Overnight Headlines 28/9/2022 

Overnight headlines

The 10-year US Treasury yield increased 3 basis points to 3.95 percent. The UK yield increased by 26 points to 4%.

James Bullard, president of the Federal Reserve Bank of St. Louis, stated that intense pricing pressures posed a danger to the legitimacy of the central bank’s inflation aim and supported further interest rate increases.

Bullard said at a business conference in London, “This is a major situation, and we need to be sure we respond to it effectively. According to the Fed’s most recent projections, “We have lifted the policy rate considerably this year and additional rises are indicated.”

According to Bullard, rates may need to increase to “the 4.5 percent range,” or around 1 percentage point higher than his April forecast.

Bullard said that he was more bullish about the economy than the markets were, saying that you should anticipate the yield curve to be inverted based on the nominal forecast rather than just the expectation of a recession. The fact that inflation expectations are realistic is positive.

Charles Evans, president of the Chicago Fed, stated at the same conference that he expects inflation to decline significantly over the next two years and highlighted signs of easing labour shortages and clogged supply chains. Despite this, he acknowledged that risks to his outlook are biassed to the downside.

Evans said that the supply-side repair process “could continue to move too slowly; events in Ukraine or additional COVID-related shutdowns could put additional pressure on costs; and monetary policy may, on the one hand, not rein in inflation enough or, on the other hand, weigh too heavily on employment.”

According to Evans, that required the Fed to remain “watchful” and modify its policies “if changes in economic circumstances demand”.

Shares closed in a mixed bag on Wall Street. The S&P 500 touched a two-year intraday low earlier in the day, and according to Bloomberg, it finished lower for a sixth straight session, its worst losing streak since February 2020.

Seven out of the 11 S&P 500 industry groupings fell along with consumer staples. Energy kept pace with progress, following the rebound of oil.

“S&P 500 has finished in the red on 56% of 184 US trading days YTD,” Schwab’s Liz Ann Sonders noted in a tweet. “On track to have second-highest yearly proportion of loss-producing trading days since modern beginnings in 1957; “top” spot belongs to 1974 with 57.7%.”The VIX edged 1 per cent higher to 32.6.

Oil increased after hitting a nine-month low the previous day thanks to supply restraints in the US Gulf of Mexico ahead of Hurricane Ian.

Analyst predictions of potential supply cuts from the Organization of the Petroleum Exporting Countries and Allies (OPEC+), which will meet on October 5 to decide on policy, also supported price growth.

Market movements

• Down 0.4% to 64.31 US cents for AUD
• Bitcoin fell by 0.8% to US$18,970
• The Dow fell 0.4% on Wall Street. S&P 500 -0.2% Nasdaq up 3.0%
• Stoxx 50 in Europe fell by 0.4% FTSE down 5% CAC down 3% DAX -0.7%
• Spot gold is up 0.6% to $1632.28 USD/oz
• Brent crude increased 2.7% to US$86.29 per barrel
• US 3.95% Australia 4.02% UK 4.02% 10-year yield 4.50% Germany 2.22%

Today’s agenda

Local: Retail sales August

Overseas data: September saw nationwide house prices in the UK and pending home sales in the US.