Coffee With Greta: Rate Hike Hangover

DJIA Futures: +72 (+0.2%)

SPX Futures: +3 (+0.1%)

NASDAQ Futures: -10 (-0.1%)

Good morning friends!

Futures are attempting to rebound after the steep selloff following the Fed rate hike on Wednesday.

Let’s get right to it!

Fed Lays Out Future Plans

The Federal Reserve hiked the federal funds rate by 0.75% as expected on Wednesday, putting base interest rates in a range of 3% to 3.25%. 

But the market’s focus was on what the Fed plans to do moving forward. 

The Central Bank’s projections show the FOMC planning to hike rates to 4.4% by the end of this year and peak at 4.6% in 2023. 

That would mean another 0.75% rate hike in November, 0.5% in December, and 0.25% at the first meeting of 2023. 

The Fed also sees unemployment rising to 4.4% next year as those rate hikes take hold. 

That’s up sharply from the current 3.7% unemployment rate, which is likely to cause a recession. 

Chairman Jerome Powell said, “The FOMC is strongly resolved to bring inflation down to 2%, and we will keep at it until the job is done.

The Fed’s dot plot does not show any rate cuts beginning until 2024.

Yield Curve Inversion Widens

U.S. Treasury yields are up this morning following the Fed rate hike on Wednesday. 

The 2-year yield is hovering just above 4.1%, its highest level since 2007. 

The 10-year yield is still hovering around 3.56%. 

The inversion between the two has deepened in recent weeks which is seen as a warning sign of an impending recession. 

Bank of England Hikes Rate By 50bps

The Bank of England voted to raise its base interest rate by 50 basis points today to 2.25%. 

That was lower than the 75bps hike most traders were expecting. 

The U.K. saw 9.9% headline inflation in August and 6.3% core inflation. 

The BOE forecast inflation will peak at just under 11% in October, down from its previous outlook for 13%. 

The bank said it believes the U.K. economy is already in a recession, forecasting Q3 GDP would contract by 0.1%.

This is the seventh consecutive rate hike and the highest rate since 2008.

Salesforce Announces New Profitability Goals

Salesforce (CRM) shares are up 2.8% after hosting an investor day event Wednesday.

The software maker’s CFO unveiled new long-term profitability goals at that event.

The company is aiming for 25% adjusted operating margin in 2026. 

That’s up from the 20% operating margin goal for the 2023 fiscal year. 

The CFO said efforts to hit that goal will include new acquisitions and more efficient spending. 

Salesforce is aiming to push adjusted sales and marketing spending below 35% of revenue by 2026. 

Weekly Jobless Claims Rise 

Weekly jobless claims rose for the first time in 6 six weeks last week. 

The Labor Department reported 213,000 Americans filed initial claims for unemployment benefits.

That was up by 5,000 from the previous week and just below economists’ expectations. 

Continuing claims fell by 20,000 to 1.38 million in the week ending September 10. 

The Fed is looking to see signs of weakness in the labor market as it hikes interest rates to tackle inflation. 

Oil Prices Rise on Fresh Supply Fears 

Oil prices are rebounding today as supply fears overtake demand concerns. 

West Texas Intermediate crude futures are up 1.7% to over $84 bbl while Brent crude futures are up 1.6% to over $91 bbl. 

The Energy Information Administration reported U.S. crude stockpiles rose by 1.1 million barrels last week vs 8.8 million expected.

Gasoline inventories rose by 1.6 million barrels with production estimated at 9.5 million barrels per day. 

In Case You Missed It

• The National Association of Realtors reported existing home sales fell 0.4% in August to a seasonally adjusted annual rate of 4.8 million units. That was the 7th monthly drop in a row and sales were down 19.9% compared to a year ago. There were 1.28 million homes for sale at the end of August, representing a 3.2-month supply.