Global indices continue to be under pressure due to monetary policy tightening by leading central banks

Ahead of the Fed’s remaining meetings in 2022, analysts believe there will likely be another 75 basis point hike in November before the pace slows to 50 basis points in December as the Fed approaches the rate cap in early 2023. The Fed is likely to leave the discount rate at this capped level for a while before the economy eventually slows down. The gap between fighting inflation and adapting to growth is becoming increasingly difficult as the Fed hopes to cut the discount rate to neutral.

The Bank of England raised the interest rate to the highest level in 14 years. Money markets now expect another 50 basis point increase in November. The current issues affecting the Bank of England are a weak pound, fiscal policy, high energy prices, a technical recession with two consecutive quarters of GDP contraction, and a hawkish Federal Reserve stance. Experts believe that financial support from the UK government may stabilize inflationary pressures in the short term but will lead to higher inflation in the medium and long term.

The Swiss National Bankм(SNB) raised interest rates by 75 basis points to push the official borrowing rate into positive territory for the first time in more than a decade. The SNB said it could not rule out further rate hikes to ensure price stability over the medium term and was prepared to be active in the foreign exchange market as needed. The SNB now expects GDP growth to be 2% this year, down half a percent from the last meeting. The central bank also noted that inflation, which was 3.5% in August, is likely to remain elevated.

Norway’s Central Bank raised its interest rate by 50 basis points and signaled that another increase is likely in November. The bank’s interest rate has reached 2.25%. Meanwhile, the inflation forecast has been revised upward, peaking at 3% in 2023 and remaining at that level through 2024.

The US Federal Reserve’s 0.75% interest rate hike Wednesday was widely expected, but the central bank’s concurrent forecast was perhaps even more hawkish than expected. That pushed US Treasury bond yields to an 11-year peak, which is more bad news for unprofitable assets such as precious metals. The overall fundamental backdrop looks unfavorable for gold, given that it has recently been largely traded as a risk asset rather than a safe-haven asset.

Buyers in the oil market are hopeful that Vladimir Putin will reduce the supply of oil in Russia so much that prices per barrel will return to triple digits. But the Federal Reserve’s influence on the flow of funds through interest rates is proving tighter than anticipated. The European Union has stepped up its plans to impose a price ceiling on Russian oil, a measure aimed at weakening Moscow’s ability to finance the war in Ukraine. Also yesterday, Nigeria’s Oil Minister Timipre Marlin Silva, speaking on behalf of the OPEC+ producers’ alliance, threatened to cut global oil production if prices continue to fall.

Moscow’s decision to partially mobilize Russian military reservists marks the biggest escalation of the Ukrainian conflict since it began. Some Russians have rushed to the country’s borders to avoid mobilization. In southeastern Ukraine, attacks from Russia have intensified, coming on the eve of pseudo-referendums planned there by Moscow’s separatists.

Asian markets traded lower yesterday. Japan’s Nikkei 225 (JP225) decreased by 0.58%, Hong Kong’s Hang Seng (HK50) ended Thursday down by 1.61%, and Australia’s S&P/ASX 200 (AU200) closed the day by 1.56%.

Japan intervened in currency to support the yen for the first time since 1998, trying to stem a 20 percent drop in the yen against the dollar this year amid a widening policy divergence with the US. Japan’s Ministry of Finance said the Central Bank would defend the 145 USD/JPY level.

Singapore’s Core Consumer Price Index (CPI) rose year-over-year to 5.1% in August, exceeding expectations of 5% and up from 4.8% in July. Spending on food and transportation contributed the most to price pressures in August. The island nation imports nearly all of its fuel and grain. The Central Bank of Singapore (MAS) has tightened policy three times this year and is likely to continue to do so to offset increased inflationary pressures.