Last Hike?

Good Morning Ladies and Gentlemen

Today’s financial press, research, and analysts‘ comments were full of reasons why yesterday’s interest hike by the U.S. Federal Reserve was the last one for this interest rate cycle. Before sharing my view on this topic with you, let me quickly go back to last week’s Stefan’s weekly.

Your comments

Many thanks, Ladies and Gentlemen, for all your messages and comments to my last Stefan’s weekly. Most people who wrote to me seemed equally concerned about what is happening in good old Germany. None of the messages I received came up with any sort of idea about a quick solution but rather shared concerns on structural political issues.

One last hike?

But now, let us go back to today’s topic. The U.S. Federal Reserve on Wednesday – as widely expected – raised the key interest rate another time by 25 basis points. Jerome Powell emphasised the data dependency for upcoming interest rate decisions and that the outlook for the economy and inflation is, therefore, crucial. According to the Fed Funds futures market, yesterday’s 25 basis point Fed rate hike was the last hike of this cycle.

Possible interest rate path

Looking at the Fed Funds futures market, market participants already expect a first-rate cut for Q3 2023. This seems a little early to me and could only be justified in a clearly recessionary environment. However, as many analysts will point out, the recent fall in the oil price and the fall in iron ore and copper may indicate that economic worries are increasing and that a recession is ante portas, even though the latest U.S. data surprised positively.

What would that mean for financial markets?

If the U.S. government cannot find a reasonably quick solution to extend its debt limit, equity markets will likely decrease, and U.S. government bonds may act as a safe haven. Nevertheless, assuming this was the last rate hike in the U.S. and assuming the market is right and the interest rate path will start to go down still this year, and assuming financial markets are following the playbook of the past, we should see more stock market weakness in the upcoming days, but as early as next week or the week after, stocks would already start to rally; with some high beta stocks and real estate leading the way. Interesting, no?
Ladies and Gentlemen, please share your opinion with me, but please remember (instead of hitting the reply button) to send your messages to:
smk@incrementum.li.

Many thanks, indeed!

I wish you an excellent start to the day and a wonderful weekend!

Yours truly,

Stefan M. Kremeth
CEO & Head of Wealth Management
Incrementum AG – we love managing assets

Tel.: +423 237 26 60
Cell: +41 79 303 48 39
Im alten Riet 102
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li