Fed speakers hint at extension of rate pause, markets anticipate tightening

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Fed speakers hint at extension of rate pause, markets anticipate tightening

The US Federal Reserve's speakers, including Jefferson, Goolsbee, Barr, and Bostic, suggested an extension of the September pause into November at a recent meeting. This information comes ahead of Fed chair Powell's address to the Economic Club of New York today, Thursday. The market is currently expecting the Federal Reserve to remain on hold with a possibility of a final hike later.

The comments by Federal Reserve officials have had an impact on the housing market, with declining new mortgage applications observed as 30-year mortgage rates have hit 8%. The broad strengthening of the US dollar has also led to a downturn in equity markets. On Wednesday, the S&P, Stoxx 600 , and Russell 2000 indices were lower due to rising yields. Industries such as materials and consumer discretionary notably underperformed, with firms like Boliden and SSAB experiencing a sell-off of 4-6%, despite steady industrial metal prices.

In the bond market, a surge in UK inflation data drove GILT yields higher, affecting global bond markets. Smaller currencies such as SEK and NOK were impacted by higher US yields, dwindling risk appetite, and rebalancing needs. Despite the negative sentiment that widened credit spreads in equity markets, the primary credit market remained active with limited deal activity.

In other news, the People's Bank of China is expected to maintain unchanged Loan Prime Rates. Meanwhile, during his visit to Israel, President Joe Biden negotiated a $100 billion supplemental funding package for aid to Israel, Ukraine, and several domestic issues with Egyptian president Abdel Fattah El-Sisi.

Today's data releases will only include the US Philadelphia manufacturing index and weekly jobless claims. The Federal Open Market Committee's (FOMC) blackout period is slated to start on Saturday.

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