The week that marks the turn of the month is highlighted for markets by the decisions of central banks. The BCs of U.S (Fed), from Brazil (Copom), from England (BoE) and the euro zone (ECB) meet at the beginning of February.
The highlight is “Super Wednesday”, when the first “Fompom” of the year takes place. On this day, the Federal Open Market Committee (FOMC) of Federal Reserve it’s the Monetary Policy Committee of the BCB announce their respective interest rates every few hours.
And this coincidence will be repeated five more times throughout 2023. In March, May, September, October and December, both Committees meet again on the same days. Not by chance, in February, there is still the European “Super Thursday” a day later.
However, each authority is experiencing a different moment in the current monetary policy cycle. While the English BC and the ECB interest rates are still tightened by 0.50 percentage points (pp) each, the steps taken by the Fed and the Copom are more uncertain.
On the one hand, the expectation in the US is for a reduction in the pace of interest rate hikes, to 0.25 pp. If confirmed, it will be the second slowdown in a row. In the end, in December the Fed raised the rate by 0.50 ppcoming from four consecutive increases of 0.75 pp between June and November 2022.
Fed and Copom: what comes after the pause?
After that, a residual adjustment of 0.25 pp is still expected, followed by an extended break in the interest rate. Fed Funds. By the way, the Copom is experiencing exactly this moment in which interest rates are maintained for an extended period – after having raised the Selic 12 times in the longest cycle since 1999.
The difference is that while the expectation for the Fed is aggressive cuts from the middle of this year, here, the forecast of a base rate parked at the current 13.75% for even longer. More than that, the Copom’s next step may be upwards – not downwards.
With that, the Fed chairman’s statements, Jerome Powell, and the Copom communiqué, both after the respective announcements on the 1st, tend to help outline the flight plan. However, the scenario ahead is cloudy, subject to operational failures in driving the interest rate – and in the dynamics of the markets.
Market decides before
After all, even if recent data point to a resilience of the US economy, at some point, US activity must stop, coming to the brink of collapse. recession. This is because the tightening of interest rates already carried out by the Fed is not yet reflected in corporate profits, inflation has not dropped to acceptable levels and unemployment has not yet risen.
The same happens in Brazil, which seems to have already fallen over the precipice, devoid of a new anchor. Supervisor. Even so, the “gringos” maintain a voracious appetite fur risk premium in Brazil, giving rhythm to the Ibovespa. The entry of external resources into the B3 opened the debate on the dollar come under R$ 5.00 coming soon.
But this window of opportunity for emerging it may close as soon as favorable winds from the outside change direction. By the way, it is worth remembering that China returns this week from the long break for the Lunar New Year holiday number 4,721, governed by the Rabbit.
The animal, which in Chinese popular wisdom governs a period favorable to tranquility and prosperity, this year is associated with water. This basic element of a liquid characteristic guarantees the necessary fluidity for money. But where is it even said that “Against the flow, there is no argument”?
Source: Moneytimes
I am an author and journalist with a focus on market news. I have worked for a global news website for the past two years, writing articles on a range of topics relating to the stock market. My work has been published in international publications and I have delivered talks at both academic institutions and business conferences around the world.
