The noise
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The US Federal Reserve decided to raise interest rates by 0.25% on Wednesday, up to a range between 5% and 5.25%, a move that was in line with consensus expectations. US interest rates are now at a 17-year high, and following the most aggressive tightening campaign since the 1980s the Fed have hinted that it may be its final move for a while.
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Following from the Federal Reserve, the European Central Bank raised its interest rate by 0.25% to 3.25%, in line with consensus. They have done so in response to strong underlying inflation that has been “too high for too long”. ECB president Christine Lagarde suggested that more rate increases were to come, with many anticipating a peak rate of 3.75%. This comes as the Euro Area sees a divergence across sectors of the economy, with manufacturing prospects worsening while the services sector grows.
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JP Morgan has agreed to acquire troubled US Bank First Republic in a US government-led deal. Agreed over the weekend, this means that First Republic becomes the fourth regional US bank to collapse since early March, and the second biggest bank failure in US history. Another regional US bank, PacWest Bancorp also appears to be brink of collapse and is exploring potential sale opportunities.
The numbers
The nuance
So far this month both the Federal Reserve and European Central Bank (ECB) have raised interest rates. Next week on Thursday, it will be the Bank of England’s turn. Markets are hoping that the US central bankers will take a break and cease hiking rates further, while the ECB are keen to keep pushing on to a terminal interest rate of 3.75%. Economists and traders are divided on where the Bank of England will land, though the most recent jobs and inflation data could indicate we’ll see a 25 basis point hike.
Despite growing consensus that the US will be in recession at some point this year, not helped by the state of the US banking sector, it’s hard to spot any real signs of economic struggle. If anything - ignoring the banking sector – it appears the outlook for the US is improving. Strong services sector data suggests consumers are still spending, and even though the manufacturing sector is shrinking, it is doing so less rapidly than expected.
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