Eyes on Fed

The Federal Reserve will probably hike by 75 basis points on Wednesday for the third straight meeting. A 100 basis point move can’t be ruled out amid global efforts to stamp out inflation. Risk assets were already having a rough session in Asia amid the dollar’s strength before the pivotal FOMC event and cryptocurrency investors waited with bated breath. Strategists are now looking beyond the key issue of inflation for other potential market metrics that may cause the Federal Reserve to slow its aggressive cycle of interest-rate hikes. Meanwhile, a brutal wipeout in a $25 billion bond exchange-traded fund has investors wagering that the worst is over.

ECB Rate Hikes

European Central Bank President Christine Lagarde said borrowing costs will rise more in the months ahead, even after officials front-loaded initial moves in what she called “the fastest change in rates in our history.” Lagarde said in a speech Tuesday evening in Frankfurt that “we expect to raise interest rates further over the next several meetings.” While ECB officials agree that further action is needed to wrest control of record inflation, there’s some discord over what level of aggression is appropriate as soaring energy costs tip Europe toward a recession.

Upping Stakes

The Kremlin is moving hastily to stage sham votes on annexing the regions of Ukraine its forces still control after Kyiv’s military drove Russian troops from large areas of territory taken in their seven-month-old invasion. The so-called Donetsk and Luhansk People’s Republics, as well as the Kherson and Zaporizhzhia regions, announced they’ll hold their votes between Sept. 23-27. Ukraine and its allies have denounced the referendums as illegal. The move threatens to escalate the bloody conflict even further, potentially giving President Vladimir Putin the formal legal basis to use nuclear weapons.

More Bailouts

The German government is planning to inject about 8 billion euros ($8 billion) into Uniper as part of a historic agreement to nationalize the gas giant and stave off a collapse of the country’s energy sector. Berlin will also buy the shares of its main shareholder, Finland’s Fortum Oyj.  Meanwhile, Germany’s bailout of Uniper is unlikely to be Europe’s last energy-sector rescue amid the crisis sparked by Russia’s war in Ukraine. “There might be more of this because in view of the incredibly high energy prices which cannot be passed on to the consumers the states must come in,” European Investment Bank President Werner Hoyer told Bloomberg Television on Tuesday.

Coming Up…

European shares may face tough trading following Asian stocks that slipped on Wednesday as investors position for a hefty interest rate hike from a hawkish Federal Reserve. The Netherlands is to announce consumer confidence data for July and Sweden to publish unemployment rate statistics. Sweden and Germany are selling bonds. Cenergy Holdings, Frontier Developments and Synergie are among companies to report earnings or sales updates.

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(Bloomberg, Sept. 21-2022)