Market Insights Weekly Update: Will The Fed Dial Back Rate Hikes?

In this week's market insights, our investment team updates that the Fed is dialing back the pace of interest rate hikes to evaluate its past measures.
24 August 2022

In this week’s market insights, our investment team updates that the Fed is dialing back the pace of interest rate hikes to evaluate its past measures.

(15 August 2022 – 19 August 2022)

Equities buckled and snapped a 4-week winning streak of weekly gains amidst lingering fears over the Fed’s hawkish stance on monetary policy tightening. The S&P 500 slipped -1.21%, MSCI World Index was down -1.65%, and MoneyOwl’s 100% equity portfolio declined by -0.48% over the past week. The US 10-year treasury yield rose 14 bps to 2.98%.

Fed up, the question is how much

Federal Reserve officials agreed last month on the need to eventually dial back the pace of interest-rate hikes but also wanted to gauge how their monetary tightening was working toward curbing US inflation. The CPI rose 8.5% in July from a year ago, which was below expectations and down from the 9.1% increase the month before. The S&P 500 has risen about 9% since that July Fed meeting, with the softer inflation figures giving some legs to a stock market rally which has in fact recovered by around 15% since mid-June. All eyes will be on the next meeting on September 20-21, where similar odds have been assigned to a half-point or a three-quarter-point hike.

At the moment, it’s anyone’s guess what the decision will be and how the market will react to all this news. Trying to time market tops and bottoms to buy or sell is always going to be a guessing game, and you might want to think twice before betting your hard-earned savings on this. Instead, your focus should be on getting a return that prioritises reliability and sufficiency, and not on making a lucky guess. You can achieve this by taking a long-term view and diversifying your exposure across a broad base of sectors and countries to reduce your portfolio’s volatility and risk over a longer time horizon. It will also be much less stressful.

China rate cuts

While most countries are hiking interest rates, China’s central bank unexpectedly cut its interest rates by 0.1% last week. This comes at the back of some weak economic data showing a deepening economic slowdown arising from the country’s zero-Covid policy and real estate crisis. The Chinese government’s crackdown on property developers last year has resulted in hard times for them, made worse by homebuyers who are tired of waiting for their half-finished homes to hold back their mortgage payments. The slashing of interest rates is aimed at spurring borrowing demand and propping up slumping consumer and business sentiment in the hopes of turning things around. And if the Covid situation doesn’t improve by next year, there might be room for more rounds of interest cuts ahead.

MoneyOwl’s portfolios have very little exposure to the China credit market. In particular, our WiseIncome fund has only around 0.6% of the portfolio in China real estate, of which 0.4% are in investment grade bonds. The multi-asset fund continues to deliver a sustainable income with broad sources of returns.

Manchester Disunited?

Looks like everyone is having a joke at Manchester United football club’s expense these days. Last week, multi-billionaire Elon Musk who has more than 100 million followers on social media tweeted “Also, I’m buying Manchester United ur welcome.” A few hours later, he clarified he was only joking, to no one’s surprise. Fans of Man United — having watched their heroes delight the rest of the English Premier League by setting $1 billion on fire over a decade to little effect — might have seriously hoped Musk meant it, writes G. Reidy in a Bloomberg opinion piece. Not because Musk is such a careful steward of companies or diligent student of sports, but because anybody could probably run Man U better than the billionaire Glazer family has. Nonetheless, their recent big win over rivals Liverpool would have stoked optimism somewhat. What does this have to do with financial markets? Nothing much, but it’s worth a chuckle nonetheless.

Read more Market Insights here.

Disclaimer: While every reasonable care is taken to ensure the accuracy of information provided, no responsibility can be accepted for any loss or inconvenience caused by any error or omission. The information and opinions expressed herein are made in good faith and are based on sources believed to be reliable but no representation or warranty, express or implied, is made as to their accuracy, completeness or correctness. Expressions of opinions or estimates should neither be relied upon nor used in any way as an indication of the future performance of any financial products, as prices of assets and currencies may go down as well as up and past performance should not be taken as an indication of future performance. The author and publisher shall have no liability for any loss or expense whatsoever relating to investment decisions made by the reader.

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