Fundamental Analysis

Equities Markets Remain Steady Amid Decreased US Wages

  • Investors hope the Federal Reserve may signal an end to interest rate hikes.
  • The US employment cost index showed its weakest increase in a year.
  • There was a significant slowdown in US house price increases in November.

On Wednesday, equity markets held steady as evidence of a slowdown in US wages raised optimism that the Federal Reserve may signal an end to interest rate increases at its meeting later in the day.

US employment cost index (Source: Bureau of Labor Statistics)
US employment cost index (Source: Bureau of Labor Statistics)

The Fed’s preferred wage indicator, the US employment cost index, showed a 1% rise last quarter, its smallest increase in a year, which caused the dollar to give up its gains.

After a gain of 1.2% from July to September, this was the smallest growth since the fourth quarter of 2021, aiding the Federal Reserve in its battle against inflation.

Other figures released Tuesday showed a notable reduction in house price growth in November, adding more positive news regarding inflation. The reports were released as a two-day policy meeting between Fed officials got underway.

According to data from the Federal Housing Finance Agency, house prices grew 8.2% year over year through November after rising by 9.8% in October. However, the persistent scarcity of properties for sale is anticipated to keep housing prices from significantly declining.

With Wednesday’s predicted 25 basis point (bps) increase, the Fed funds rate target range will likely climb to 4.5-4.75%. Markets have priced in a decrease in the pace of rate hikes.

The focus will be on Powell’s tone in the absence of any surprises. Investors will wait to see if and how strongly he opposes market expectations for rate cuts to begin as early as the second half of 2023.

“Anything Powell says that’s not 100 percent hawkish might ultimately be perceived as not being hawkish enough. On the other hand, the market will likely seize even the smallest dovish remark and run with it, “Brian Daingerfield, NatWest Markets’ head of G10 currency strategy, said.

There will also be data on US manufacturing as the global economy shows signs of weakness.

According to a private survey released Wednesday, industry activity in Japan went down for the third consecutive month in January. South Korea reported a record monthly trade imbalance in January, primarily due to a far worse-than-anticipated export decline.

Later in the day, Meta, the owner of Facebook, will report its earnings. As a slowdown approaches, company executives adopted a cautious tone during earnings calls on Tuesday.