Weekly economic and financial commentary

Wells Fargo Research Team Wells Fargo

Summary

United States: Whatever It Takes

As widely expected, the FOMC raised the target range for the fed funds rate by 75 bps for the third consecutive time. The housing market continues to buckle under the pressure of higher mortgage rates, while the Leading Economic Index has signaled a broader loss of momentum across the economy.
Next week: Durable Goods (Tue), Consumer Confidence (Tue), Personal Income & Spending (Fri)

International: Bank of Japan's Policy Actions Offset Each Other

Aside from the Fed, the central bank that caught the attention of market participants this week was the Bank of Japan (BoJ). As expected, the BoJ left monetary policy settings unchanged; however, the communication around the decision was widely interpreted as dovish.
Next week: Central Bank Speakers (Mon-Fri), China PMIs (Thu), Eurozone Inflation (Fri)

Interest Rate Watch: Aggressive Fed Path Boosts Inflation-Fighting Credibility

The FOMC delivered its third straight 75 bps hike and a hawkish message for rates going forward at its meeting this week. The FOMC now sees it likely the fed funds target range will rise to 4.4% by the of this year and 4.6% by the end of next year as inflation is expected to be more intractable than previously believed.

Credit Market Insights: Reading the Pulse of the Corporate Bond Market

The Federal Reserve Bank of New York's Corporate Bond Market Distress Index (CMDI) tracks corporate bond market functioning using a variety of metrics from the market at large, including the investment grade and high yield markets. The latest release of the CMDI indicated that the corporate bond market was in good health through August.

Topic of the Week: Shot Across the Bow, Japan Intervenes Against Surging Dollar

On Thursday, in a surprise move Japan's Ministry of Finance intervened in FX markets to strengthen the yen for the first time since 1998. The beleaguered yen has declined over 20% against the dollar this year, briefly hitting a 24-year low of JPY145.89 on Thursday after BoJ policymakers signaled they plan to keep monetary policy settings accommodative.

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Wells Fargo Research Team

Wells Fargo

EUR/USD hits two-day highs near 1.1820

EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.

GBP/USD reclaims 1.3600 and above

GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.

Gold climbs further, focus is back to 45,000

Gold regains upside traction and surpasses the $4,900 mark per troy ounce at the end of the week, shifting its attention to the critical $5,000 region. The move reflects a shift in risk sentiment, driving flows back towards traditional safe haven assets and supporting the yellow metal.

Crypto Today: Bitcoin, Ethereum, XRP rebound amid risk-off, $2.6 billion liquidation wave

Bitcoin edges up above $65,000 at the time of writing on Friday, as dust from the recent macro-triggered sell-off settles. The leading altcoin, Ethereum, hovers above $1,900, but resistance at $2,000 caps the upside. Meanwhile, Ripple has recorded the largest intraday jump among the three assets, up over 10% to $1.35.

Three scenarios for Japanese Yen ahead of snap election

The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.

XRP rally extends as modest ETF inflows support recovery

Ripple is accelerating its recovery, trading above $1.36 at the time of writing on Friday, as investors adjust their positions following a turbulent week in the broader crypto market. The remittance token is up over 21% from its intraday low of $1.12.