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WEEKLY ROUND-UP Thru Sept 22nd 2023; “Dot Plot Turmoil”

Hey Folks, this past week we saw the largest drop since March of this year for the S&P as investors ponder the implications of higher rates for longer. Get my take in this week’s round-up.


US indexes declined for the week as investors reacted to hawkish forecasts from the Federal Reserve’s latest meeting and rising U.S. Treasury yields. The S&P 500 Index recorded its largest one-day loss in six months on Thursday on its way to a third-straight losing week (worst weekly drop since March). In addition to concerns about higher interest rates, worries about the impact of the UAW strike and the potential for a U.S. Gov shutdown may have also weighed on markets. It is also important to note that from August to October for the past 95 years we have seen Volatility spike 27%.

As expected, the Fed left its short-term lending benchmark at a target range of 5.25% to 5.50%, the level set at the previous meeting in July. And its updated Summary of Economic Predictions (Dot Plot) continued to show one more rate hike in 2023. However, policymakers surprised markets with an outlook for rates in 2024 that was notably higher than expected with only the potential of only 2 rate cuts in ’24 vs 4 the markets were expecting. In addition, the FEDs rate prediction for 2025 also increased. However, the Feds did raise its growth forecast, an acknowledgment that the economy has been more resilient than expected.
The prospect of the Fed keeping short-term rates higher for longer along with healthy economic growth signals helped send longer-term U.S. Treasury yields higher, with the benchmark 10-year U.S. Treasury yield reaching a 16-year high near 4.50%. It is interesting to note that the 10 Yr. Rate Long Term average going back to 1790 is 4.5%.

In Europe we see that the BoE’s Monetary Policy Committee voted 5-4 to keep the key interest rate unchanged at 5.25% as economic growth slows—the first pause since December 2021. BoE Governor Andrew Bailey stressed that borrowing costs could rise again if there is evidence of more persistent inflationary pressures. The decision to halt policy tightening came a day after official data showed that annual inflation in the UK slowed to 6.7% in August from 6.8% in July. Measures of underlying inflationary pressures also declined but remained well above the BoE’s 2% target. Eurozone orders dropped the most in almost three years, causing private sector output to contract for a fourth consecutive month. The seasonally adjusted Eurozone Composite PMI Output Index was 47.1 in September, up marginally from 46.7 in August. Manufacturing continued to shrink the most, while services sector activity decreased for a second month running.

Meanwhile, in Japan the continued monetary policy divergence between the hawkish Fed and the dovish BoJ weighed on the yen, which weakened to around JPY 148.3 against the U.S. dollar, from about JPY 147.8 the previous week. At its September meeting, as widely anticipated, the BoJ kept its short-term interest rate at -0.1% and that of 10-year Japanese government bond (JGB) yields at around zero percent. Japan’s core consumer price index (CPI) rose 3.1% year on year in August, slightly ahead of consensus expectations.

In China, they pledged to accelerate measures to consolidate the country’s recovery and continue supporting growth in 2024. In a sign of investors’ concern about the health of China’s economy, China recorded capital outflows of USD 49 billion in August, the largest since December 2015, which pushed the yuan to a 16-year low against the U.S. dollar. Most economists see future growth of China at just 3-4% which is about half of its growth for the previous decade. Even though China is a top trading partner with 120 co0untries many or lessening their imports from China as current Globalization supply chains are being changed.

Enjoy This Week’s Round-Up;

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