A closely-watched US inflation report next week could help settle one of Wall Street’s most pressing questions: whether the market has correctly pegged the near-term trajectory for interest rates.
Following last month’s banking crisis, investors have become more convinced the Federal Reserve will cut rates in the second half to ward off an economic downturn. Such bets have pushed bond yields lower, supporting the giant tech and growth stocks that hold sway over broad equity indexes. The S&P 500 has gained 6.9 per cent so far this year.
But the central bank’s more restrictive rate outlook sees borrowing costs remaining around current levels through 2023. That view could gain support if next week’s inflation reading shows a strong rise in consumer prices even after aggressive Fed rate hikes over the past year.
“If [the CPI] comes in hot, investors will start to price interest rates closer to where the Fed is and likely pressure asset prices,” said Tom Hainlin, national investment strategist at US Bank Wealth Management.
The firm is recommending clients slightly underweight equities, expecting interest rate hikes to hit consumer spending and corporate profits.
US employment data for March, released on Friday, showed signs of persistent labour market tightness that could prompt the Fed to hike rates again next month.
Recession worries are mounting, with investors betting the tumult in the banking system sparked by the March collapse of Silicon Valley Bank will tighten credit conditions and hurt growth.
In the bond market, the Fed’s preferred recession indicator plunged to fresh lows in the past week, bolstering the case for those who believe the central bank will soon need to cut rates. The measure compares the current implied forward rate on Treasury bills 18 months from now with the current yield on a three-month Treasury bill.
Pricing in futures markets shows investors betting that central bank easing later this year will drop the fed funds rate from 4.75 per cent to five per cent currently to around 4.3 per cent by year-end. Yet projections from Fed policymakers show that most expect no rate cuts until 2024.
"Financial markets and the Federal Reserve are reading from two different playbooks," strategists at LPL Research said in a note earlier this week.
Bets on a more dovish Fed have boosted tech and growth stocks, whose future profits are discounted less when interest rates fall. The S&P 500 technology sector has surged 6.7 per cent since March 8, more than twice the gain for the overall index over that time.
Economists polled by Reuters expect March data, due April 12, to show the consumer price index climbed by 5.2 per cent on an annual basis, down from six per cent the prior month.
Markets will also watch first-quarter earnings, which start in the coming week with major banks including JPMorgan and Citigroup due on Friday. Analysts expect S&P 500 earnings to fall 5.2 per cent in the first quarter from the year-ago period, data from Refinitiv showed.
If the Fed was trying to protect investors, one way would be to cut rates. They haven’t done so yet, but the market is betting that they will, rightfully or wrongfully
Mark Hackett,
chief of investment research at Nationwide
For some investors, the Fed’s recent interventions to stabilise the banking system may have revived hopes of a so-called Fed-put, said Mark Hackett, chief of investment research at Nationwide, referring to expectations that the central bank will take action if stocks fall too deeply, even though it has no mandate to maintain asset prices.
“If the Fed was trying to protect investors, one way would be to cut rates," Mr Hackett said. "They haven’t done so yet, but the market is betting that they will, rightfully or wrongfully.”
Still, a recession could pressure stock prices, even if it forces the Fed to cut rates sooner. Some investors worry that stock prices have not accounted for a drop in valuations and corporate earnings that would occur during a sharp slowdown.
“One only needs to look back to 2001 or 2008 to see that a shift in Fed policy alone is not always enough to stop an economy on a downwards trajectory or start a new bull market,” wrote Keith Lerner, co-chief investment officer at Truist Advisory Services, in a note earlier this week.
“Our view is the market is now baking in a lot of good news and leaving little margin for error,” he said.
Key facilities
- Olympic-size swimming pool with a split bulkhead for multi-use configurations, including water polo and 50m/25m training lanes
- Premier League-standard football pitch
- 400m Olympic running track
- NBA-spec basketball court with auditorium
- 600-seat auditorium
- Spaces for historical and cultural exploration
- An elevated football field that doubles as a helipad
- Specialist robotics and science laboratories
- AR and VR-enabled learning centres
- Disruption Lab and Research Centre for developing entrepreneurial skills
Benefits of first-time home buyers' scheme
- Priority access to new homes from participating developers
- Discounts on sales price of off-plan units
- Flexible payment plans from developers
- Mortgages with better interest rates, faster approval times and reduced fees
- DLD registration fee can be paid through banks or credit cards at zero interest rates
Match info
Premier League
Manchester United 2 (Martial 30', Lingard 69')
Arsenal 2 (Mustafi 26', Rojo 68' OG)
Karwaan
Producer: Ronnie Screwvala
Director: Akarsh Khurana
Starring: Irrfan Khan, Dulquer Salmaan, Mithila Palkar
Rating: 4/5
ICC men's cricketer of the year
2004 - Rahul Dravid (IND) ; 2005 - Jacques Kallis (SA) and Andrew Flintoff (ENG); 2006 - Ricky Ponting (AUS); 2007 - Ricky Ponting; 2008 - Shivnarine Chanderpaul (WI); 2009 - Mitchell Johnson (AUS); 2010 - Sachin Tendulkar (IND); 2011 - Jonathan Trott (ENG); 2012 - Kumar Sangakkara (SL); 2013 - Michael Clarke (AUS); 2014 - Mitchell Johnson; 2015 - Steve Smith (AUS); 2016 - Ravichandran Ashwin (IND); 2017 - Virat Kohli (IND); 2018 - Virat Kohli; 2019 - Ben Stokes (ENG); 2021 - Shaheen Afridi
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The Bio
Hometown: Bogota, Colombia
Favourite place to relax in UAE: the desert around Al Mleiha in Sharjah or the eastern mangroves in Abu Dhabi
The one book everyone should read: 100 Years of Solitude by Gabriel Garcia Marquez. It will make your mind fly
Favourite documentary: Chasing Coral by Jeff Orlowski. It's a good reality check about one of the most valued ecosystems for humanity
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MOUNTAINHEAD REVIEW
Starring: Ramy Youssef, Steve Carell, Jason Schwartzman
Director: Jesse Armstrong
Rating: 3.5/5
Ultra processed foods
- Carbonated drinks, sweet or savoury packaged snacks, confectionery, mass-produced packaged breads and buns
- margarines and spreads; cookies, biscuits, pastries, cakes, and cake mixes, breakfast cereals, cereal and energy bars;
- energy drinks, milk drinks, fruit yoghurts and fruit drinks, cocoa drinks, meat and chicken extracts and instant sauces
- infant formulas and follow-on milks, health and slimming products such as powdered or fortified meal and dish substitutes,
- many ready-to-heat products including pre-prepared pies and pasta and pizza dishes, poultry and fish nuggets and sticks, sausages, burgers, hot dogs, and other reconstituted meat products, powdered and packaged instant soups, noodles and desserts.
Real estate tokenisation project
Dubai launched the pilot phase of its real estate tokenisation project last month.
The initiative focuses on converting real estate assets into digital tokens recorded on blockchain technology and helps in streamlining the process of buying, selling and investing, the Dubai Land Department said.
Dubai’s real estate tokenisation market is projected to reach Dh60 billion ($16.33 billion) by 2033, representing 7 per cent of the emirate’s total property transactions, according to the DLD.
Maestro
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Biog:
Age: 34
Favourite superhero: Batman
Favourite sport: anything extreme
Favourite person: Muhammad Ali
Gothia Cup 2025
4,872 matches
1,942 teams
116 pitches
76 nations
26 UAE teams
15 Lebanese teams
2 Kuwaiti teams
The specs
Engine: 3.8-litre twin-turbo V8
Power: 611bhp
Torque: 620Nm
Transmission: seven-speed automatic
Price: upon application
On sale: now
THE BIO
Age: 30
Favourite book: The Power of Habit
Favourite quote: "The world is full of good people, if you cannot find one, be one"
Favourite exercise: The snatch
Favourite colour: Blue
MATCH INFO
Newcastle United 2 (Willems 25', Shelvey 88')
Manchester City 2 (Sterling 22', De Bruyne 82')
The biog
Family: He is the youngest of five brothers, of whom two are dentists.
Celebrities he worked on: Fabio Canavaro, Lojain Omran, RedOne, Saber Al Rabai.
Where he works: Liberty Dental Clinic
'Joker'
Directed by: Todd Phillips
Starring: Joaquin Phoenix
Rating: Five out of five stars
COMPANY%20PROFILE%20
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