Why markets are betting the Federal Reserve will take its hawkishness down a notch
Markets have high hopes that the Federal Reserve will see the latest slowdown in inflation and ease up on its tightening cycle with a smaller rate hike.
Falling gasoline prices have played a big role in cooling inflation, but global energy markets remain volatile amid Russia's war on Ukraine.
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1. You can likely forget about another 75-basis-point rate hike from the Fed. So far this year, the central bank has increased benchmark rates four times, starting with 25 basis points, ramping up further to 50 and finally two 75 basis point bumps in June and July.
Investors are now betting that the Fed will tone it down, with the next rate hike to be 50 basis points when the FOMC meets in September. Fed funds futures show that investors think the odds of another 75 basis point hike have come down significantly.
"The market says, 'You can tighten financial conditions in the short term. But we're concerned that come end of this year, early next year, the economy will be in such a condition and price pressures would have eased that we think you, the Fed, will be on hold until late 2023 when you'll end up cutting interest rates,'" Marc Chandler, managing director at Bannockburn Global Forex, told Insider.
Wharton professor Jeremy Siegel said a half-point increase followed by two quarter-point hikes should allow the Fed to meet the market's expectations.
Hopes for a less hawkish US central bank added to growing optimism for a turnaround in stocks. The bear market in stocks is almost over, according to Fundstrat's Tom Lee, who reiterated his view that "buy the dip" is back in style. The market's so-called fear gauge, meanwhile, fell to its lowest level since April as risk appetite among stock investors returned.
In other news:
2. US stock futures rise early Thursday, after data showed US inflation cooled sharply in July. Meanwhile, cryptocurrencies are up, with bitcoin trading above $24,500. Here are the latest market moves.
3. On the docket: Illumina, Canada Goose, and Rivian are all reporting. Plus, look out for the US Producer Price Index, expected to be released by the Bureau of Labor statistics later this morning.
4. Morningstar said the tide is turning for bank stocks. Rock-bottom interest rates previously hammered lenders, but the Fed's tightening cycle is improving their earnings prospects. Here are 14 bank stocks trading at a high discount to fair value.
5. US gasoline prices are below $4 a gallon for the first time since March. That's according to GasBuddy, which pointed to rising supplies and concerns about the slowing economy. But gas prices could soon rise again as global oil supplies remain relatively low.
6. European natural gas jumped Wednesday. Prices are close to record highs again as countries fill up inventories ahead of the winter while Russia continues to squeeze supplies. Now a drop in the Rhine river to crisis levels is threatening the transport of commodities.
7. Two former JPMorgan traders were convicted of manipulating metals markets. It comes after a month-long trial into a practice seen on Wall Street known as "spoofing". Click here for the latest, and to find out what "spoofing" is.
8. BMO's investing chief says stocks still have plenty of upside. That's because there won't be a recession, according to Brian Belski, who sees inflation falling and strong corporate earnings. He and his colleagues picked these 30 buy-rated stocks.
9. Investing in multi-family properties offers financial benefits. Insider spoke with two real estate investors who are financially independent from their rental portfolios. If you're interested in investing, here's why a multi-family home can be a fantastic "entry-level" step.
10. Oil prices have tumbled more than 20% in the last two months. West Texas Intermediate is down 28% since early June, while Brent crude has 24% in that time. The three Rs are to blame: recession fears, Russian resilience, and retreating demand.
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Curated by Jason Ma in Los Angeles (feedback? email jma@insider.com)
Edited by Max Adams (@maxradams) in New York and Hallam Bullock (@hallam_bullock) in London.