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The week started on a cautious note as stocks in Asia mostly sold off following a rough week in the US, where the Federal Reserve’s (Fed) hawkish pause triggered a fresh wave of worries that the rates would stay higher for longer. The yields pushed higher as the S&P500 recorded the worst performance over the week since the banking crisis in March.

The UAW strikes will broaden to all GM and Stellantis parts plants in the US, which means that 5600 more workers will join the movement (Ford will likely be spared, for now, as some good progress is made on negotiations with the UAW) and the US will shut down by the end of the week if politicians fail to pass a dozen of bills. The latest US GDP update will fall in this chaotic environment, but the expectation is a positive revision !

In the currency markets, the US dollar extends gains. The dollar index entered the bullish consolidation zone after the Fed decision, the EURUSD tested an important Fibonacci support last week, and the USJDPY pushes timidly higher, fearing a direct FX intervention to turn the market upside down.

Inflation numbers will be on the menu in many locations this week. For Europe, any softness in inflation should give further support to the euro bears, while higher than expected numbers, which I believe could be the surprise of this week could revive the European Central Bank (ECB) hawks, but will hardly prevent the euro from seeking into a deeper depression.

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The Swiss National Bank (SNB) and the Bank of England (BoE) surprised by maintaining their rates unchanged at yesterday’s trading session. The Bank of Japan (BoJ) surprised by maintaining its ultra-lose monetary policy stance unchanged. Combined with a hawkish pause earlier this week, the major currencies further sank against the greenback. I think that the BoE decision was premature, and the bank will be obliged to hike more in the coming meetings.

But uf there is one bright spot in Britain, it is the FTSE100, supported by cheaper sterling and higher energy prices, as the US technology stocks are set to post their worst performance this year on the back of hawkish Federal Reserve (Fed) and rising yields – although the US 2-year yield is headed toward 5% mark, and bond traders bet that the Fed will announce a 3rd pause in November.

Elsewhere, there was no progress regarding a dealt between UAW and the Detroit automakers, which combined to a cheaper yen could further bolster appetite in Japanese carmakers.

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The Federal Reserve (Fed) maintained interest rates unchanged, as expected. It revised its growth forecast higher, as expected. The dot plot showed one more rate hike before the end of this year, and less cuts next year.

The Fed announcement was hawkish, without much surprise. The market reaction was smooth and unsurprising, as well. Yields and the dollar gained, stocks fell.

Today, it’s the Bank of England’s (BoE) turn to decide. Up until yesterday, the expectation was an almost certain 25bp hike, but yesterday’s shocker inflation data has shaken these expectations to 50-50.

Elsewhere, the barrel of US crude fell below the $90pb on Wednesday, FedEx topped estimates thanks to UPS strike threat and GM, Ford and Stellantis have until noon tomorrow to avert broader strikes.

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The Federal Reserve (Fed) will announce its latest policy decision and reveal revised growth and inflation forecasts today.

The Fed is broadly expected to keep the interest rates unchanged; the policymakers will likely sound satisfied with the progress on inflation, and they could revise their growth forecasts significantly higher. Strong growth forecast could trigger a fresh wave of hawkish trades across stock, bond, and currency markets. But the reaction is not a given as the US economy gives signs of exhaustion and recession is still on the cards. So if you see the US dollar sold after a hawkish Fed announcement, don’t ne too surprised!

Across the Atlantic Ocean, the British inflation unexpectedly eased from 6.8% to 6.7% in August, core inflation fell from 6.9% to 6.2%. The surprise fall in UK inflation triggered a kneejerk selloff in sterling, as today’s data cements the expectation that the Bank of England’s (BoE) next rate hike could also be its last.

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Strikes at GM, Ford and Stellantis factories dampened overall market sentiment on Monday. The walkout led by United Auto Workers (UAW) began last Friday and saw little progress.

GM, Ford and Stellantis fell yesterday. The barrel of US crude traded past the $92 level, as Brent crude advanced past $95pb.

This week, the US policymakers will certainly opt for a ‘hawkish pause’. The Fed will likely revise its growth expectations significantly higher on the back of resilient consumer spending and solid growth. The US dollar index tested the important 38.2% Fibonacci resistance last week, especially after the euro sold off following the ECB rate hike. The Fed announcement could push the US dollar index into the medium-term bullish consolidation zone.

If the Fed is not expected – not even a little bit – to hike rates this week, the Bank of England (BoE) could hike the bank rate by a final 25bp on Thursday. In Japan, not much is expected to change this week. Warnings from Japanese officials that a further yen selloff would spark a direct FX intervention slowed down but not reversed the JPY selloff. The USDJPY is trading just below the 148 level, with, sure, limited upside potential, and of course a good downside potential, waiting to be unlocked by a reasonably hawkish BoJ, and I don’t see that coming this week.

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The European Central Bank (ECB) raised interest rates by 25bp yet the euro sold off. In fact, many euro bears also jumped on a trade yesterday as Lagarde announced that the ECB significantly pulled its economic projections to the downside. BUT, in the meantime, the ECB revised its inflation expectations higher as well. Therefore, it’s naïve to think that the ECB can’t continue hiking rates with such a sour economic outlook, especially when the barrel of US crude trades past $91pb, and Brent is getting ready to test $95pb.

Rising oil prices are not benign, but the hawkish ECB is not necessarily positive for the euro, and here is why: the data released in the US yesterday showed that both retail sales and PPI got a decent boost because of higher gasoline prices in August. There is no chance that Jerome Powell will announce the end of the rate hikes next week.

PS: US government drama and shutdown risk could eventually soften US outlook and temporarily prevent the Fed hawks from forcefully coming back.

In equities, ARM rose 25% yesterday and gained another 7% in the afterhours trading!

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Yesterday’s US CPI report was mixed, worse-than-expected and far from soothing. The headline inflation ticked from 3.2% to 3.7%, higher than the 3.6% expected, and core inflation came in at 4.3%, in line with expectations. But on a monthly basis, core inflation numbers was slightly higher than expected. The US 2-year yield was shortly above the 5% level yesterday but fell after the data, activity on Fed funds futures now gives 97% chance for a pause at next week’s FOMC meeting, but the probability of a pause in November is slightly less than before the data, at 56%.

Across the Atlantic Ocean, not earlier than the beginning of this week, the expectation for today’s European Central Bank (ECB) meeting was a no rate hike. Today, just a few hours before the meeting, the pricing is pointing at a 25bp hike as the most likely scenario; money markets are pricing in a 68% chance for a 25bp hike.

In the UK, the rate hike expectations are also strong but weak economic growth, rising unemployment, unfortunately coupled with rising wages hint that the BoE is also leaned to raise the rates. But the rate hikes that happen when economy slows doesn’t boost appetite for euro nor for sterling.

In equities, all eyes are on ARM that will go public today. The company set its IPO price to $51 a share. It’s at the top end of the proposed price range, but still lower than the valuation of $64bn when Softbank bought out a stake from Vision Fund.

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The S&P500 slipped below its 50-DMA, as Apple’s new iPhone15 failed to spark buying interest for the heavily battered stock on Tuesday’s product reveal. Apple shares fell 1.70%. Oracle dropped 13.5%, the most in 21 years, after reporting slower cloud sales growth whereas investors were hoping AI to make numbers look more beautiful than what was announced.

In energy, US crude rallied past the $89pb, as OPEC forecasted a shortfall of around 3.3mbpd next quarter thanks to Saudi Arabia’s supply cut extension.

Today, the US will release its latest inflation update, and it will be very important in terms of where the Federal Reserve (Fed) expectations will be headed, especially for the November meeting. The headline inflation is expected to have ticked higher from 3.2% to 3.6% in August, due to the spike in energy prices, but core inflation may have eased from 4.7% to 4.3%.

How do you interpret the mixed set of numbers?

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Tesla jumped 10% yesterday and reversed morose mood due to the Apple-led selloff as Morgan Stanley raised its price target from $250 to $400 a share.

Tesla rally helped the S&P500 make a return above its 50-DMA, as Nasdaq 100 jumped more than 1%. Apple recorded a second day of steady trading after shedding almost $200bn in market value last week. Apple will unveil new products today hoping to change headlines.

Elsewhere, ARM IPO has been oversubscribed by 10 times already and bankers will stop taking orders by today. The promising demand could also encourage an upward revision to the IPO price, and we could eventually see the kind of market debut that we like!

In the bonds market, the US 2-year yield is steady around the 5% mark before tomorrow’s much-expected US inflation data, while the EU Commission itself cut the outlook for the euro-area economy. There is no clarity regarding what the European Central Bank (ECB) will decide this week. The economy is slowing but inflation will unlikely to continue its journey south, giving the ECB a reason to opt for a ‘hawkish’ pause, or a ‘normal’ 25bp hike.

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The S&P500 ended last week on a meagre positive note, as the selloff in Apple shares slowed. Apple will be unveiling the new iPhone15 after the Chinese storm.

China announced this morning that consumer prices rose by 0.1% y-o-y in August, slower than 0.2% penciled in by analysts and after recording its first drop in over two years of 0.3% a month earlier. The US CPI data is in focus this week and should help shaping Fed expectations for November.

The US dollar is under a decent selling pressure this morning, particularly against the yen, after comments from the Bank of Japan (BoJ) Governor Ueda were interpreted as being ‘hawkish’.

For the European Central Bank (ECB), the base case scenario is a no rate hike at this week’s monetary policy meeting, but the European policymakers could announce a 25bp hike despite the latest weakness in economic data.

On the corporate calendar, ARM will go public this week, in what is going to be this year’s biggest IPO. The company is expected to price on the 13th of September with a price range of $47-51 per share, and will start trading on Nasdaq the following day. ARM is expected to be valued at around $52bn, roughly 20 times its last disclosed annual revenue on expectation that the chips needed to power the generative AI will make ARM a sunny to-go place.

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