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APRIL 14, 2023

FED CONSIDERS ONE LAST HIKE

The Federal Reserve is considering one last quarter-percentage-point interest rate increase. This move is expected to ensure that inflation will steadily return to the desired target of 2%. Recent studies show that consumer price hikes are reducing and producer price inflation is declining. Most Fed policymakers agree that this increase will likely be the last, but there are differing opinions on whether a still higher rate is needed to tackle inflation. Atlanta Fed President, Raphael Bostic, recommends pausing after this increase to study the economic and inflation consequences and limit potential damage. However, given that inflation is still above the Fed’s target range, Bostic suggests sticking with the current plan of “hitting the mark and hold” until a trend emerges requiring a different approach.

GLOBAL MARKETS FIND STABILITY AMID RATE HIKE RUMORS

After a period of instability, global markets appear to have settled down, amid rumors that the Federal Reserve and other central banks are about to end their rate hike cycles. Consequently, Europe’s Stoxx 600 index has continued its growth for the fourth week in a row – longest growth period since December 2nd. Furthermore, the MSCI World index rose and is likely to close at its highest level in ten weeks. The S&P 500 index experienced a significant rise on Thursday, but remained steady afterwards, and the Treasuries index increased slightly.

STRONG RESULTS

Two U.S. major banks, JPMorgan Chase and Wells Fargo, have reported exceptional strong earnings. JPMorgan Chase reported a record revenue of $39.34 billion, which surpassed analyst predictions, and saw their stock price shoot up by over 5%. Wells Fargo also exceeded Wall Street’s expectations, with earnings per share at $1.23 and a revenue of $20.73 billion. The successes can be attributed to high interest rates, however, JPMorgan Chase CEO, Jamie Dimon, has cautioned that uncertainty still exists in the banking industry, and noted that the bulk of the JPMorgan’s growth came from lending to big companies.

SURGING GOLD PRICES

Gold prices are heading towards a record high as investors are buying gold for safety and protection against bank failures. Central banks are also contributing to the rise by purchasing more gold. Gold has gained more than 25% since November and the trend is set to continue. As of Thursday, gold settled at $2,041.30 per ounce – the second highest value in history.

BofA REPORTS $538 BILLION INFLOW INTO CASH FUNDS

According to Bank of America data, investors have transferred $538 billion into cash funds in the previous eight weeks. This move followed the collapse of Silicon Valley Bank and mid-sized lender Signature Bank in mid-March. As a result, investors transferred funds from bank accounts to highly liquid money market funds. Treasuries have also been popular with investors, with $65 billion invested in Treasury funds – strongest start to a year ever recorded.

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