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Morning Market update, July 26, 2023: Learn to Trade UK.

Good morning, traders! Today's market is abuzz with anticipation as the Federal Reserve prepares to make a crucial decision. They are expected to raise interest rates by a quarter of a percentage point in their latest policy meeting. This move would mark the 11th consecutive hike in the past 12 meetings and is part of the central bank's aggressive battle against inflation.

Jerome Powell, the Fed Reserve chairman, on a plinth, wit hflags either side of a blue curtain ready to address a press conference

Federal Reserve Expected to Raise Interest Rates by 0.25%

- 11th Hike in the Past 12 Policy Meetings

Investors have been closely monitoring this development, and the increase has been anticipated with nearly a 100% probability. If implemented, the benchmark overnight interest rate would rise to the 5.25%-5.50% range, the highest level since the approach to the 2007-2009 financial crisis and recession.

Economy Resilient to Rising Interest Rates, Unemployment at 3.6%

- Fed Balancing Strong Economy Against "Disinflation" Concerns

- Meeting-by-Meeting Judgments on Incoming Data

Despite these developments, there is no indication of an impending financial crisis on the horizon. In fact, the economy has displayed remarkable resilience to rising interest rates. Ongoing growth and an impressively low unemployment rate of 3.6% have bolstered confidence in the economic outlook.

The Federal Reserve's key challenge lies in balancing the economic scenario. They must assess whether the economy remains strong enough to justify a still-elevated rate of inflation or if a process of "disinflation" is underway, which might continue without further rate increases. The upcoming policy statement, coupled with the press conference by Fed Chair Jerome Powell, will provide crucial insights into their approach.

Data Since June Lowers Expectations for Further Rate Increases

- Fed's Policy Outlook and Projections:

- Fed Not Updating Quarterly Economic and Rate Projections

- June Projections Indicated Nearing the End of Hiking Cycle

- Only One Further Quarter-Percentage-Point Increase Expected Beyond Wednesday's Hike

- Data Suggests Further Moderation in Economic Indicators

- Consumer Confidence Index Shows Low Inflation Expectations

Interestingly, the Fed is not updating its quarterly economic and interest rate projections at this meeting. Data since June has lowered expectations for further rate increases. Headline inflation data came in weaker than expected, and indicators for producer prices and other aspects of the economy suggest a trend of moderation. This data suggests that the need for only one further quarter-percentage-point increase beyond the expected hike on Wednesday is more likely.

In this context, the Conference Board's report on the US consumers' 12-month inflation expectations sinking to the lowest level since November 2020 has further influenced sentiment.

Inflation Indicators and Fed's Target

- Personal Consumption Expenditures Price Index to Be Released on Friday

- Expected to Show 4.2% Annual Rate in June, Lowest Since September 2021

- Fed Aims for Inflation to Return to 2% Target

- Powell: Progress on Inflation Must Be Sustained Over Several Months

Market Reactions, Learn to Trade UK

- European Stocks Edged Lower, Luxury-Goods Sector Hit

- US Equity Futures Stable, S&P 500 Hits Highest Level Since April 2022

- Dow Jones Industrial Average Sees 12th Straight Advance

- Investors Cautious Ahead of Federal Reserve's Rate Decision

In the markets, European stocks edged lower due to a slowdown in spending by wealthy consumers in the US. However, US equity futures remained relatively unchanged, with the S&P 500 hitting its highest level since April 2022 and the Dow Jones Industrial Average enjoying its 12th straight advance, the longest winning streak in over six years. However, investors are proceeding cautiously ahead of the Federal Reserve's rate decision.

Asian Markets and Currency Movements

- Hong Kong Stocks Decline, Technology Shares Fall Over 1%

- Japanese and South Korean Equities Also Experience Losses

- Australian Stocks Advance After Slower Than Expected Inflation

As Chinese equities fell, strategists believe that policy support details from Beijing are needed to bolster fragile sentiment. The previous Politburo meeting's promise of more economic support drove a rally on Tuesday.

Fed's Rate Decision Impact on Currency Market and Stock Market

- Dollar Relatively Flat, Two-Year Treasury Bond Yields Mostly Unchanged

- Front-End Rates May Decline If Inflation Outlook Improves

- US Stock Market Vulnerable to Disappointments on Economy or Earnings

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