📈 Weekly Market Update | Week Ending 22 Sep 2023

• 🇺🇸 The US Federal Reserve remains hawkish, signalling another possible rate hike for 2023

• 🇯🇵 The Bank of Japan holds rates steady and signals that they are in no rush to tighten its policies

• 🏴󠁧󠁢󠁥󠁮󠁧󠁿 The Bank of England holds rates steady for the first time in nearly two years

1. The US Federal Reserve remains hawkish, signalling another possible rate hike for 2023

The Dow Jones, S&P 500 and Nasdaq ended the week 0.12%, -0.16% and -0.39%, respectively. A hawkish pause by the US Federal Reserve caused a market sell-off in equities, with the major equity indexes ending the week in the red and treasury yields hitting a 16-year high. The US Federal Reserve, during its latest FOMC Meeting, opted to keep the federal funds rates unchanged at a 22-year high of 5.25%-5.5%, which is in line with market expectations but signalled that there could be another rate hike this year. Additionally, median projections by FOMC policymakers were revised upwards to 5.1% by the end of next year, 50bps higher than June's projections. On the economic front, US initial jobless claims and continuing claims all fell and came in below market expectations, indicating the continued resilience of the labour market.

The US 10-year treasury yield surged to 4.4 %, a 16-year high, as the market continued to price in a higher for longer interest rate environment, while the US 2-year treasury yield spiked to 5.2%, its highest level since November 2000. The US Dollar also rose, with the Dollar Index ("DXY") rising above 105.5, its highest level since early March 2023. A hawkish Fed and higher treasury yields led to the sell-off in equities, with the Dow Jones, S&P 500 and Nasdaq recording losses of -1.89%, -2.93% and -3.62%, respectively, for the week.

2. The Bank of Japan holds rates steady and signals that they are in no rush to tighten its policies

Over in Japan, the Bank of Japan (“BoJ”) maintained its key short-term interest rate at -0.1% and the 10-year bond yields at around 0% during its recent September meeting. The allowance band of 50bps set on either side of the yield target and the 1% cap on the 10-year bond yield was also left unchanged. Due to the highly uncertain economic environment, the BoJ commented that it would patiently continue with monetary easing and respond accordingly to any development in economic activity and financial conditions. Meanwhile, recent economic data for Japan showed that headline inflation slowed to 3.2% in August from 3.3% in July, while core inflation stayed above the BoJ’s 2% target for the seventeenth straight month. Business activity in Japan also slowed to a seven-month low in September.

3. The Bank of England holds rates steady for the first time in nearly two years

Lastly, the Bank of England (“BoE”) held its policy interest rate unchanged at 5.25%, keeping borrowing costs at their highest level since 2008 as policymakers opted for a wait-and-see approach following the latest inflation and labour data which suggested that the accumulated impacts of previous policy tightening might be taking effect. UK’s most recent inflation data showed that consumer price inflation eased to 6.7% in August 2023 from 6.8% in the previous month, falling below market consensus of 7%. This is the lowest level since February 2022 due to a slowdown in food inflation and a decline in the cost of accommodation services. Additionally, core inflation, which excludes volatile items such as energy and food, dropped to 6.2%, the lowest since March 2023 and well below estimates of 6.8%.

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This Weekly Market Update is curated and sourced from Bloomberg and various financial news.

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