Morgan Stanley predicts that stock market valuations will fall after the Fed turns to Eagles

The U.S. Senate passed a bill raising the debt ceiling by $2.5 trillion and sent it to the House of Representatives for a vote:

The US Senate passed a bill to raise the debt ceiling by US$2.5 trillion, aiming to extend the government’s debt-raising authority until early 2023. The Senate passed the bill by a vote of 50 to 49. House majority leader Steny Hoyer said he plans to vote in the House of Representatives later on Tuesday and then send it to President Biden for signing into law. The U.S. Senate Majority Leader Chuck Schumer stated in the Senate that “the American people can rest assured that the government will not default on debt.”

The U.S. PPI in November has a record year-on-year increase, and consumer prices are expected to rise:

The U.S. Producer Price Index (PPI) set a record year-on-year increase of nearly 10% in November. This soaring momentum is expected to support inflationary pressures to continue to rise for a long time in 2022. Data released by the US Department of Labor on Tuesday showed that the PPI for final demand in November increased by 0.8% month-on-month and 9.6% year-on-year, both of which exceeded economists’ expectations. PPI created the largest annual increase since the data began to be counted in 2010. As the data strengthened expectations that the Federal Reserve will tighten monetary policy next year, the US stock market fell in response.

The high inflation fever has put pressure on the Fed, and the next meeting is expected to announce an accelerated reduction:

After the U.S. price increase has reached its highest level in nearly 40 years, the Fed is expected to announce an accelerated reduction at its meeting next week. According to data released by the US Department of Labor on Friday, the CPI rose 6.8% in November and 0.8% month-on-month. The increase in CPI reflects broad increases in most commodity categories including gasoline, housing, food and automobiles. When talking about CPI in November, Sarah House, senior economist at Wells Fargo, said, “The data confirms that the Fed is expected to start raising interest rates sometime next year. I think the forecast for interest rates on the dot plot to be released next week will increase significantly. “

Morgan Stanley predicts that stock market valuations will fall after the Fed turns to Eagles:

Daniel Skelly, head of market research and strategy at Morgan Stanley Wealth Management, said that the Federal Reserve is expected to announce an accelerated cut to pave the way for interest rate hikes. This signal will inevitably lead to a decline in the stock price-earnings ratio because economic growth will slow down due to currency tightening. “The P/E ratio has more downside,” Skelly said in an interview on Bloomberg TV’s Surveillance program on Tuesday. “This is in line with normal historical conditions. In the past, when the policy transition in the cycle reached its peak, the price-to-earnings ratio usually fell by 10% to 15%.”

The European Central Bank is reported to predict that the inflation rate in 2023 and 2024 will be below the 2% target:

According to officials familiar with the matter, the latest forecast by the European Central Bank shows that the inflation rate in 2023 and 2024 will be lower than the target of 2%, which will become a reason for Governor Lagarde to oppose rapid interest rate hikes. Officials familiar with the matter said that next year’s consumer price increase is expected to be higher than the 2.2% forecast in September, but it is expected to slow down in the following years. Because the latest forecast has not yet been made public, these officials declined to be named. This will be the first time that the forecast range covers until 2024, and it will also be a key consideration for the European Central Bank’s policy path in the post-epidemic era.

The International Monetary Fund urges the Bank of England and the Ministry of Finance to act as soon as possible to deal with inflation risks:

The International Monetary Fund (IMF) stated that the Bank of England and the Ministry of Finance should join forces to curb inflation. The rapid rise in inflationary pressures poses a threat to the UK’s long-term economic growth prospects. The IMF warned in its regular assessment of the UK’s economic prospects that the Bank of England cannot “tend to stand still” and expects the inflation rate to reach 5.5% next spring, more than twice the target level of 2%. The new crown epidemic is expected to leave permanent scars on the British economy. Affected by the epidemic prevention measures, the UK’s economic growth will “moderately slow down” and will eventually stabilize at 2% to 2.5%, which is lower than the trend level before the epidemic.

International Energy Agency: The supply climbs and Omicron strikes, the oil market resumes oversupply:

The International Energy Agency (IEA) said that the global oil market has returned to a surplus, and as omicron restricts international travel, it may face a more substantial oversupply early next year. According to IEA, global supply is rebounding, from the current increase in OPEC+ production and the release of strategic reserves to the record production in the United States, Canada and Brazil next year. After the emergence of new mutant strains leading to weaker demand for jet fuel, global oil inventories may increase by 1.7 million barrels per day in the early months of 2022.



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