Interest rate hikes slowing down? What impact could this have on the markets?

U.S. stock index futures seem to be rising this morning, after yesterday's successful start of the week. The U.S. dollar, on the other hand, seems to be stabilizing, while oil, gold or silver are trying to rebound from recent lows. The market may be raising hopes for a slower pace of interest rate hikes in the US.

Interest rates - bad data, is good data?

U.S. stock futures rose Tuesday morning. CFDs on the Nasdaq 100 index on the Conotoxia MT5 platform at 07:46 GMT+3 rose 1.00 percent to 11359 points. The move appears to be a continuation of yesterday's gains. In Monday's trading, the Dow Jones rose 2.66 percent, the S&P 500 rose 2.59 percent and the Nasdaq Composite rose 2.27 percent. Earlier, the indexes hit their lowest levels in about two years. The possible catalyst for the rebound on Wall Street was data on activity in the US manufacturing sector. September's ISM PMI showed that manufacturing activity grew at its slowest pace in 30 months, and new orders even fell, indicating that monetary tightening may be having an impact on demand. 

Source: Conotoxia MT5, US100, D1

"The U.S. manufacturing sector continues to expand, but at the lowest pace since the pandemic recovery began. After four consecutive months in which companies reported softening rates of new orders, September's index reading reflects companies adjusting to potential future lower demand." - commented ISM Manufacturing Business Survey Committee Chairman Timothy R. Fiore.

Weaker-than-expected manufacturing data may have eased concerns about the aggressive path of interest rate hikes in the US. Treasury bond yields fell after the news, and investors are hoping that the Fed would slow the pace of rate hikes. Markets are now looking forward to the monthly US employment report, which will be released on Friday, 7/10/2022. 

Australia with fewer interest rate hikes. AUD under pressure

The Australian dollar fell nearly 1 percent to $0.645 shortly after the RBA's decision on Tuesday, then pared some of its losses after the Reserve Bank of Australia made a smaller-than-expected interest rate hike. The RBA raised the official spot rate by 25 points to 2.6 percent. The market had been hoping for a larger hike of 50 basis points, but the central bank left the door open for further tightening in its statement. Australia's central bank has raised interest rates at six consecutive meetings by a total of 250 basis points, and said the monetary rate had been raised significantly in a short period of time, so it decided to slow the pace of increases. "The Council is committed to returning inflation to the 2-3 percent range over time. Today's rate hike will help achieve this goal, and further increases are likely to be required in the coming period," - RBA Governor Philip Lowe said.

Source: Conotoxia MT5, AUDUSD, m30

The Bank of Australia is the first central bank among the world's major economies to decide to put the brakes on interest rate hikes. Will other central banks also follow in its footsteps? We will find out this fall.

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Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Conotoxia investment service)

Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.

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