Markets saw a spectacular fall last week after higher-than-expected inflation numbers raised expectations of an interest rate decision by the Central Bank in its upcoming policy meeting. For the week, the Dow Jones fell more than 4%, the S&P 500 declined 4.8%, while the tech-heavy based plunged 5.5%. $S&P 500(.SPX)$ $DJIA(.DJI)$ $NASDAQ(.IXIC)$
Two-year interest rates rose to 3.87%, with a spread between the two-year and ten-year now widening to 0.42%, which is often a leading indicator of a recession.
The week ahead is packed with a crucial central bank meeting where policymakers will decide on futureinterest rates and key housing data that will show the impact of contracting demand and increased mortgage rates on the housing market.
Federal Reserve Policy Meeting
In its two-day meeting on Tuesday and Wednesday, the US Federal Reserve is expected to meet to discuss its decision on the prevailing interest rates in the economy. While economists had previously anticipated the pace of rate hikes to slow down to 50 basis points (bps) per meeting, the recent increase ininflationhas made some fear a 75 bps or even a 100 bps hike in the current meeting.
So far, the Fed has raised its federal funds’ rateby a cumulative 225 bps since Marchas it tries to combat inflation which is near a four-decade high. This has already resulted in a severe decline across theequity, fixed income, commodities, and housing market, but a more aggressive central bank decision could mean that asset prices could fall further.
Housing Market Updates
The week ahead is packed with housing market data from new housing Strats to existing home sales, which is sure to paint a clear picture of how markets are impacted based on rising mortgages and falling demand.
New Housing Permits, Source: TradingEconomics
On Tuesday, the US Census Bureauis set to release data on housing starts and building permits for August. Consensus forecasts show that housing starts willfall moderately from 1.446 millionin July to 1.4 million in August due to falling consumer demand and rising material costs due to inflation.
On Wednesday, the National Association of Realtor swill release updated data for existing home sales in august. Existing home sales have fallen consecutively for six months and are set to decline again in August, as mortgage rates crossed 6% for the first time in 14 years.
Existing Home Sales, Source: TradingEconomics
Forecasts show that home sales will fall to 4.7 million units in August, down from 4.81 million homes sold in July and far from the peak of 6.49 million homes sold in January. Housing Markets Could see more weakness in the coming months as mortgage rates continue to increase and consumers see their existing home equity diminish.
S&P 500 Chart
S&P 500 Chart, Source:TradingViewBottom Line
The week ahead is packed with a crucial Federal Reserve meeting on interest rates, determining where markets are headed next. Furthermore, housing market updates should also help market participants better understand the current state of the economy.
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