FOMC 09/20: Market surprised as FED changes plans on interest rates

Daily news highlights:

FED Dot Plot signals longer interest rate plans than market expectations
Market reaction after FOMC
US auto strike on day six: Expected to continue
Goldman Sachs raises oil price forecast, threatening soft-landing prospects
OECD: Global growth to slow in 2024

FED Dot Plot signals longer interest rate plans than market expectations

FOMC summary this afternoon 09/20/2023:

FED keeps interest rates unchanged as market expected

12/19 FOMC members indicate need for one more rate hike in 2023, contrary to expectations of ending the rate cycle
- Will only cut rates by 0.5% in 2024, down from 0.75% in previous meeting
- 2026 interest rates at 2.9%, higher than long-term 2.5%, extending rate cycle by 1 year

Stable economy and "soft-landing" forecast within reach with significant changes from June meeting:
- Real GDP growth forecast 2.1% for 2023 from 1.0%
- 2023 unemployment rate at 3.8%
- Inflation slightly down but still stable at high levels

Powell: "FED will use other tools to tighten financial conditions" and "ready to raise rates further if necessary"
Powell: "Economy shows clear signs of improvement"

Market reaction after FOMC

Market reacts sharply after FOMC announces interest rate plans not as expected, SPX hits 4400 after rejection at key gamma level 4500 with panic put buying demand.

Bond yields surge with 2Y hitting highest since 07/2006

10Y yield breakout above August high hitting highest since 10/2007

US auto strike on day six: Expected to continue

Workers at three major US automakers General Motors, Ford Motor and Stellantis strike simultaneously after failing to reach agreement in wage and benefits negotiations for 146,000 employees.

This week, Ford laid off 600 workers to reach last-minute deal to avoid strike in Canada on Tuesday. Stellantis considering closing 18 plants to continue negotiations.

Goldman Sachs raises oil price forecast, threatening soft-landing prospects

According to the report, all crude oil inventories fell more than expected. Specifically:

API crude oil inventories down -5.25 million barrels (deeper than expected -2.667 million barrels).
API refined oil imports down -64,000 barrels/day.
API crude oil imports down -862,000 barrels.
API Cushing crude oil stocks down -2,564 million barrels.

According to Goldman Sachs, OPEC may keep Brent crude at 80 - 105 USD in 2024.

Overall, oil prices are one of the biggest challenges Fed faces to ensure "soft landing" prospects

OECD: Global growth to slow in 2024

OECD raised global economic growth forecast to 3.0% in 2023 and lowered it to 2.7% in 2024. Inflation expected to continue.

According to OECD report, US GDP growth will be stronger than June forecast, but will drop to 1.3% in 2024 from 2.2% in 2023. China sees particularly deep GDP downgrade, growth under 5% next year due to weakening domestic demand and structural stress in real estate market.

Other news:

Instacart IPO on Tuesday with 660 million USD market cap and stock down about 5.7% in Wednesday premarket trading.

China keeps rates at record low 3.45%, while 5-year LPR used to set mortgage rates also unchanged at 4.20%.
Share buyback activity surges in Hong Kong stock market, showing some stabilization signs thanks to Beijing stimulus measures.