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MAY 4, 2023

FEDERAL RESERVE’S POLICY DECISION SPARKS UNCERTAINTY

The recent Federal Reserve policy decision, which included a rate hike and signals of a possible pause in tightening, has triggered doubts among traders and commentators about the central bank’s assessments of the economy. Despite the Fed’s reluctance to lower interest rates, the bond market appears to be betting on a rate reduction. Financial stocks have fallen, and crude oil prices have also decreased, reflecting concerns about a recession that some believe is unavoidable due to limited economic growth. Meanwhile, Powell remains optimistic that the U.S. banking turmoil is over, despite the slow pace of bank lending. Nevertheless, experts believe that if the economy faces a recession, the Fed may have to reconsider its approach.

ADP REPORTS JOB GAINS

According to the ADP National Employment Report, private companies unexpectedly added more jobs in April with a gain of 296,000 jobs, despite the Federal Reserve trying to slow economic growth and reduce the strong labor market. This rise is accounted as the highest monthly increase since July 2020, and the ADP highlighted that even small-sized companies contributed positively to the gains. The highest sector growth for jobs was leisure and hospitality, followed by education, health services, and construction.

EXPERTS FORESEE U.S. TREASURY DECLINE

Experts from Mizuho Bank and JPMorgan are predicting that there could be a significant drop in the U.S. Treasury market as the economy edges closer towards recession. They believe that benchmark 10-year yields might fall to as low as 2% by early next year if the U.S. economy continues to slide. As bond prices tend to increase when yields fall, investors are being encouraged to buy sovereign bonds in anticipation of a recession and Fed rate cuts.

PACWEST BANK SEEKS HELP AMID BANKING CRISIS

PacWest Bank’s stock has plummeted by half, prompting them to consider all strategic options, including selling themselves. The bank is reportedly considering splitting up the company or raising capital to support itself. PacWest Bank’s value has declined due to the surge in interest rates and customers withdrawing their deposits, which left the bank with a potential cash flow problem. Consequently, PacWest is in talks with potential investors to maximize shareholder value.

INTERNATIONAL NEWS

The European Central Bank has raised its benchmark interest rate by 25 basis points in response to a surge in consumer prices, which brings the rate to levels not seen since November 2008. The increase comes after recent inflation figures, which showed a rise in the headline rate to 7% for April while core inflation, not including food and energy prices, slightly decreased to 5.6%. The central bank first increased the rate from -0.5% to zero in July 2022, but consistent increases have proved ineffective in combatting the high inflation that is still above the targeted rate of 2%.

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