Weekly Commodities Update Weekly Commodities Update Weekly Commodities Update

Market Insights Today: FOMC’s hawkish dot plot; more G10 central bank meetings ahead – 15 December 2022

Equities 6 minutes to read
APAC Research

Summary:  The widely expected 50bps rate hike by the Fed came along with hawkish revision of the dot plot in which the terminal rate projection was increased to 5.1% from September’s 4.6%. Equities and bonds fell but the reaction faded later at Chair Powell’s presser where he hinted that policy is close to “sufficiently restrictive”. Dollar ended the day lower. Meanwhile, China’s plan to go ahead with the Central Economic Work Conference despite the surge in cases boosted sentiment. Crude oil prices were firmer on IEA expecting higher prices next year. A plethora of G10 central banks, including the BoE, ECB, SNB, & Norges Bank, meet today.

What’s happening in markets?

Nasdaq 100 (NAS100.I) and S&P 500 (US500.I) erase part of the post-FOMC announcement declines

Equity markets were in a whipsaw falling sharply after the announcement of a 50bps rate hike which was accompanied by a hawkish shift in the dot plot which brought the terminal rate projections to 5.1% for end-2023 from 4.6% at the September meeting. Some of the decline was however reversed later as Chair Powell press conference went underway. Fed Chair Powell started the press conference with a hawkish tone in which he noted there is still some ways to go and the Fed needs to see substantially more evidence to have confidence inflation is on a sustained downward path back to target, although there was some reprieve after Powell stated during the Q&A that he thinks policy is getting to a pretty good place and close to sufficiently restrictive. S&P 500 ended the session down 0.6% and Nasdaq 100 was down close to 0.8%.

Hong Kong’s Hang Seng (HIZ2) and China’s CSI300 (03188:xhkg) edged higher in a lackluster session

Hong Kong and Chinese stocks edged up higher. The Bloomberg story speculating about a delay in China’s annual Central Economic Work Conference due to a surge in Covid inflections in Beijing did not worry investors much. Investors were encouraged by signs that the Chinese authorities were not reversing course despite outbreaks after the easing of restrictions. China will stop reporting infections without symptoms as mandatory testing has been dropped. Hang Seng Index climbed 0.4%. CSPC Pharmaceutical (01093:xhkg), rising 6.5%, was the best performer in the benchmark index. Hengan (01044:xhkg), Sunny Optical (02382:xhkg), Techtronic Industries (00669:xhkg), Li Ning (02331:xhkg), and Baidu (09888:xhkg) were other outperformers, gaining between 3% and 6%. Previously battered Chinese educational services providers soared while online healthcare names pulled back from recent strength on profit-taking. Alibaba Health (00241) slid 7%. In A-shares, CSI 300 gained 0.3%, with semiconductor, tourism, lodging, and Chinese liquor stocks advancing.

FX: Hawkish Fed unable to provide a lasting bid to the dollar

The USD eventually settled lower on Wednesday following the FOMC rate decision and the press conference by Chair Powell. Initial positive reaction following the upside adjustment in the dot plot was erased as Chair Powell said he thinks policy is getting to a pretty good place and policy is getting close to sufficiently restrictive. GBPUSD tested the critical 1.2450 with UK CPI also coming in softer than expected at 10.7% and cooled from the prior 11.1%. EURUSD got in close sight of 1.0700 while USDJPY fluctuated between 135-136.

Crude oil (CLF3 & LCOG3) extended the rally on IEA outlook

Crude oil prices surged higher again on Wednesday with the IEA warning that prices may rise next year as sanctions squeeze Russian exports. It expects its output will fall by 14% by the end of the first quarter. It also increased estimates for global demand by 300kb/d, in a nod to China’s reopening. Overall crude consumption is expected to rise 1.7mb/d next year to average 101.6mb/d. A weaker US dollar despite the Fed’s hawkish shift in the dot plot also underpinned, while the unexpectedly large increase in US inventories was shrugged off. WTI futures rose above $77/barrel while Brent touched $83.


What to consider?

FOMC sets the terminal rate forecast at 5.1%, above market expectations

The Fed voted unanimously to lift the Federal Funds Rate target by 50bps to 4.25-4.50%, as expected, downshifting the pace of rate hikes. While the statement was broadly unchanged, the updated economic projections showed Fed Funds at 5.125% by December 2023 and core PCE still at 3.5% by that time. That implies 75bps of more tightening in this cycle, which will be seen in 2023, but the markets are still pricing in a peak rate of 4.87%. After that point, the dot plot is far more distributed, but the median projects the Federal Funds Rate target at 4.1% by the end of 2024, suggesting 100bps of rate cuts. Equities did see a negative reaction to the upside surprise in terminal rate projections, but this may remain short-lived as markets remain focused on incoming data. Bond markets had little reaction to the Fed’s updated dot plot. Dollar fell.

Australia employment report better-than-expected

Australia’s November employment rose 64k, higher than the +19k estimate and more than the revised +43k gains for October. Jobless rate was steady at 3.4% and participation rate came out higher to return to the record highs of 66.8% (vs. estimate 66.6%). The strength in the labor market will continue to provide room to the Reserve Bank of Australia to continue with its modest rate hikes, after it has already downshifted to a smaller rate hike trajectory.

A weak set of Chinese activity data is expected

Economists surveyed by Bloomberg are forecasting that China’s retail sales shrank sharply by 3.9% Y/Y in November. The potential weakness is likely attributed to poor performance of auto sales, dining-in activities, and sales during the “double-11” online shopping festival in the midst of Covid-19 lockdowns during the best part of November. November auto sales in China fell by 9.2 %Y/Y and by 10.5% M/M. Courier parcels processed on Nov 11 fell 20.7% Y/Y. The growth in industrial production is expected to fall to 3.7% Y/Y in November from 5% to 3.7%, following a weak November NBS manufacturing PMI and soft high-frequency data of steel production. Year-to-date fixed asset investment is expected to edge0 down to 5.6% from 5.8%, dragged by stringent pandemic control practices.

ECB also likely to downshift to a smaller rate hike

The European Central Bank (ECB) is also expected to slow down its pace of rate hikes to a 50bps increase this week. Headline inflation eased slightly in November, coming in at 10.0% YoY (exp. 10.4%), but was overshadowed by an unexpected rise in core inflation 6.6% YoY (exp. 6.3%, prev. 6.4%). While there is likely to remain some split in ECB members at this week’s meeting, the central bank’s Chief Economist Lane remains inclined to take into account the scale of tightening done so far. There is also uncertainty on the announcement of quantitative tightening.

Bank of England may remain more divided than the other major central banks

The Bank of England is also expected to follow the Fed and the ECB and downshift to a smaller rate hike this week, but the decision will likely see a split vote. A host of key data, including GDP, employment and inflation will be due this week in the run up to the BOE decision, and significant positive surprises could tilt the market pricing more in favour of a larger move which also creates a bigger risk of disappointment from the central bank. Headline annualised inflation advanced to 11.1% Y/Y in October, while the core rate remained at an elevated level of 6.5%. Consensus expects inflation to cool slightly to 10.9% Y/Y in November, but the core to remain unchanged at 6.5% Y/Y. Wage pressures are also likely to be sustained, and the cooling in the labor market will remain gradual.

The U.S. is adding China’s top memory chips maker to the trade blacklist

The U.S Department of Commerce is reportedly moving Yangtze Memory Technologies, a leading memory chip maker in China, together with 30+ other Chinese companies, from the Unverified List to the Entity List, after the expiry of a 60-day period for the company to answer requests for information about its business and customers. The Entity List is the official export control blacklist that restricts companies from access to American technologies.

New Zealand Q3 GDP comes in above expectations

A big positive surprise in NZ Q3 GDP which came in at 2.0% Q/Q sa vs expectations of 0.9% and higher than last quarter’s revised 1.9%. With the possibility of a recession in 2023 highlighted yesterday, this print suggests that there is a substantial amount of work left to be done by the Reserve Bank of New Zealand to dampen demand in order to curb inflation.

Bank of Japan policy review speculation gathers further pace

Some reports suggested that the BOJ could review policy next year, after pay growth and any slowdown in the global economy are closely examined. The results of spring wage negotiations come in mid-March, after Governor Haruhiko Kuroda's final policy meeting, so an assessment would probably be done after he departs. The review could reaffirm the existing ultra-loose framework, but possibility of some tweaks to the yield curve control policy remains as inflationary pressures remain a concern.


For our look ahead at markets this week – Read/listen to our Saxo Spotlight.

For a global look at markets – tune into our Podcast.


Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000

Contact Saxo

Select region


The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.