LGT Navigator: Monetary policy sets the pace - Fed interest rate decision in focus

Published: 2022-01-27 06:19:20 ET T

The monetary policy decision of the US Federal Reserve is eagerly awaited today, with the focus on the subsequent communication of the next steps.

It can be assumed that the Fed will concretize the roadmap for the reduction of monetary stimulus and the first interest rate hikes. Meanwhile, on Wall Street, interest rate-sensitive tech stocks remained under pressure, wiping out another recovery attempt.

Monetary policy sets the pace - Fed interest rate decision in focus

On the Nasdaq, the indices lost around two and a half percent on Tuesday, thus also weighing on the standard stocks. The S&P 500 also fell sharply by -1.3% and the Dow Jones Industrial held up best after an initial loss of around two percent (closing -0.2%). Risk aversion and volatility increased noticeably, and investments considered safe were in demand. Initially, good quarterly figures from Microsoft offered support. The software giant earned more than expected in Q2 thanks to a strong cloud business. In the end, however, the share price fell by around five percent.

In addition to the interest rate decision of the Federal Reserve at 20:00 (CET) and the subsequent press conference at 20:30, the quarterly results of Intel, Tesla or AT&T, among others, are in the spotlight today.

West calls for de-escalation in Ukraine conflict

The United States and European countries have jointly called on Russia to de-escalate the aggravated situation in the Ukraine conflict and stressed the intention of a diplomatic solution. In case of further aggression against Ukraine, the Western alliance threatens severe consequences. In a conference call, US President Joe Biden and the heads of government of Germany, France, Italy, the United Kingdom and Poland, as well as EU Commission chief Ursula von der Leyen, EU Council President Charles Michel and NATO Secretary General Jens Stoltenberg, demonstrated unity and assured 'their full support for Ukraine's sovereignty and territorial integrity.' However, Biden said, security and stability in Europe must be resolved through negotiations. Moscow, meanwhile, blames the West for heightened tensions.

US consumers more pessimistic

In the US, consumer sentiment deteriorated at the start of this year. According to the New York-based economic research institute Conference Board, the consumer confidence barometer fell from 115.2 to 113.8 points in January. However, analysts had expected an even steeper decline to 111.2 points. While the private households surveyed were more positive about their current situation than in December, the outlook clouded over considerably.

IMF corrects forecast for global economy

The International Monetary Fund (IMF) has adjusted its forecast for the global economy downward due to an anticipated slowdown in growth in China and the US. The global economy is expected to grow by +4.4% this year, compared with the previous forecast of +4.9%. For the US economy, the IMF now expects GDP growth of +4.0% (previously +5.2%) and for China's economy a GDP rate of +4.8% is forecast (previously +5.6%).

German corporates more confident about the future according to Ifo survey

The business climate in Germany has surprisingly improved at the beginning of the year. According to the results of the monthly survey by the Munich-based Ifo Institute, the sentiment barometer climbed from 94.8 points in December to 95.7 in January (consensus 94.7). The outlook of the approximately 8000 companies surveyed brightened. The index for business expectations improved significantly from 92.7 to 95.2. Meanwhile, the current business situation was assessed somewhat more critically in January, with the corresponding indicator falling from 96.9 in December to 96.1 points.

ECB chief economist expects inflation to fall sharply in the second half of the year

Philip Lane, chief economist of the European Central Bank (ECB), continues to expect the current record high inflation in the eurozone to weaken again in the second half of the year. At the end of last year, inflation in the euro area was +5.0%, driven mainly by the sharp rise in energy prices. Lane also stressed that the ECB is ready to act should inflation remain persistently and significantly above the two percent target. This would require a 'considerable tightening' of monetary policy. However, the chief economist considers such a scenario to be 'less likely' at present.

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