Inflation, British Stimulus, and Housing.
Let's start this one off with a hat tip for the analysts. You came back to the post-Labor Day Weekend weekend work pile, plus the interest-rate news courtesy of the ECB and J Pow.
This week, we’re diving into the mounting pressure on Powell to perform, the state of Europe, and some key commodities back home.
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This Week's Market Outlook
Market forecasts are powered by Kalshi.com
You know it's been a busy news cycle when September hits and even Starbucks has more important things to tweet about than pumpkin spice lattes. Last week saw investors digging into conflicting economic signals, and now they're in the weeds analyzing both domestic and international politics. Keep reading for the top news this week.
J Pow's Bingo Card
Congratulations to anyone who made their own Fed speech bingo cards, because you're probably all winners. Powell's speech yesterday morning gave investors more mixed signals than Elon gives Twitter. If your card included him blaming inflation on COVID and global economic conditions and continuing to use ambiguous language, you're probably a winner.
We love a king doing the bare minimum. Despite the plethora of memes and market news this year, J Pow is still employed as the Fed Chair. If you did forget, he made sure to remind us in his Thursday morning remarks at the Cato Institute’s monetary policy conference in Washington.
As Powell humbly reminded us in his speech, the Fed needs to "act now"..."as they have been doing." If that doesn't have you cracking open a White Claw yet, Powell and pals want to emphasize they're all "strongly committed to this project."
We would love to see the MD's response to an intern that used this line as a status update for an important task.
Fed officials have raised rates at the fastest pace since the early 1980s. Friendly reminder, the benchmark federal-funds rate went from near zero in March to a range between 2.25% and 2.5% in July. Fed Vice Chairwoman all but confirmed Powell's stance in a speech of her own this Wednesday. Similar to Powell, she didn’t express a preference on the size of the next increase, but she agreed the need for rates to rise and stay at levels that would slow economic activity.
Kalshi markets are predicting a 78% chance that the Federal Reserve will hike interest rates by 75 bps or more come September. This is up from 63%, which is what Kalshi markets were forecasting last week.
Over in Europe and No Longer Europe
And here we thought the end of the summer couldn't get much worse for the English than last year's home Euros loss. This week, the U.K. got its third prime minister in just over three years, but lost one of its most pivotal figures in its history.
Queen Elizabeth II was the symbol of stability the U.K. needs more than ever right now. In her first day on the job, new Prime Minister Truss was forced to find a way to protect businesses and individuals from soaring energy prices caused by the continuing war in Ukraine. It's a pressing policy decision that could shape the rest of her tenure, which may have already been turned on its head with the late monarch's passing.
On Thursday morning, Truss channeled some of her predecessor BoJo's early mojo and announced a broad stimulus package she hopes will help Brits with energy bills and attract investment into the sector. Truss' action plan quickly spiraled into a heads-up, as the U.K. will now be in mourning for the next ten days.
Beyond the U.K., the European Central Bank had some hot takes of its own. On Thursday morning, it announced it would raise its key interest rate by 0.75%. This hike will mark the biggest increase since the early days of Europe’s monetary union. It's major "hold our beer" energy to Jackson Hole, as Europe also tries to combat record inflation.
Well, that and the energy crisis putting Europe on the brink of recession.
Kalshi markets are predicting a 94% chance that Euro area inflation will be above 6% in 2022. Only time will tell if their landing could be nearly as soft as the one in J Pow's fever dreams.
More Domestic Distress
A housing crisis: Something that's never happened before, something we could have never predicted. Plus, gold, liquid gold, and other domestic signals.
Over in the housing market, mortgage rates touched their highest level in nearly 14 years this week. The average rate on a 30-year fixed mortgage rose to 5.89%, topping an earlier high from June. This time last year, rates were below 3%. This news adds just another blow to an already-cooling housing market.
And mortgage rates look set to continue rising. As the Fed lifts rates to try to curtail inflation, borrowing costs have been driven up across the board. If markets are right and the Fed lifts rates later this month, that will be about as helpful for the housing market as Spectrum customer support when you're trying to cancel your service.
Unlike Bubblegum Brittney at Spectrum, the Federal Reserve needs to care about this. Housing is a key focus for the Fed because rising costs are a major component of the current sky-high inflation.
Meanwhile, oil futures dropped below $85 a barrel for the first time since January. This is a welcome change from early March levels, when crude hit 14-year highs following Russia’s late February invasion of Ukraine.
To compound the issue, concerns are mounting about slow demand from China. Customs data released Wednesday suggested that China’s crude oil imports in August fell 9.4% from a year earlier. This data indicates that traders have given up on oil, at least for the short-term. With the impending economic slowdown, investors are increasingly pressed to focus on insurance for it, rather than oil's current tight supply situation.
Felling pressed by gas prices? Kalshi's new WTI oil market launched today.
Couldn't escape politics this week, so we ended up tracking Dems' increasing approval. No one likes a bandwagoner, so we're taking "No" on Biden's approval rating being >45% come election day at $0.73. You can learn more about how to hedge these elections here. That's all for today, have a great weekend!
Forecasts powered by Kalshi
As always, these market forecasts are powered by Kalshi, the first regulated prediction market in the US. Trust data, not pundits, and get your forecasts from people with real skin in the game.