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Note from the MD: Markets await rates call amid inflation panic

Global markets are on tenterhooks ahead of the release of the US Federal Open Market Committee’s latest interest rate decision, due early Thursday morning (Australian time).
Global markets are on tenterhooks ahead of the release of the US Federal Open Market Committee’s latest interest rate decision, due early Thursday morning (Australian time). A third consecutive rate hike of 75 basis points above the current target range of 2.25% to 2.50% is widely predicted, but it’s possible an inflation-panicked Fed will instead opt for a full 100-basis-point leap – something that hasn’t happened since the 1980s. Whatever the outcome of this FOMC meeting, most leading economists now expect the US central bank to lift its benchmark policy rate above 4% and then hold it there beyond 2023, according to a survey published this week in the London Financial Times. And many observers – including ANZ Bank – believe the rate will peak at 5% or higher, i.e. double its current level. In Australia, some economists are already predicting that the Reserve Bank of Australia will be forced to start slashing rates as early as next year to stave off recession. However, the RBA’s options will be limited if the Fed is still moving aggressively in the opposite direction. Casting doubt on the prospects of rates in Australia softening any time soon, RBA governor Philip Lowe said earlier this week that rates are still at the low end of their ‘normal’ range. He also said the public’s perceptions around inflation appear to be shifting in the wrong direction, with Aussies becoming increasingly resigned to price increases. Coupled with the recent volatility in global markets, uncertainty about when rates might start turning is making life tricky for investors currently looking to time share purchases. But it’s worth remembering that old investor adage: the key to successful investing is time in the market, not market timing. Speaking of which, the market has been trying to recover losses after last week’s sharp decline, brought on by global inflation numbers, which saw the index break below the 50-day moving average in a move sharply lower. Any surprise moves by central banks above market analysts’ expectations would see a large negative impact on the XJO. If the index moves lower, it could be expected that the support at 6535 will be tested. Furthermore, with any move down of that magnitude, volatility is also expected to increase. Implied volatility on the XJO is now at 16.71% with an IV rank of 38. It’d be expected we could see a large move up in volatility with any move down in share price. Purchasing some insurance on your portfolio would benefit from any potential move down in price and move up in volatility. Historically, the healthcare sector has proven to be largely immune to recession. For example, demand in the sector’s biggest market, the global US$280 billion oncology industry (as at 2021), is predominantly driven by the demand for therapies and the rapid innovation that is happening in the field right now. We have an upcoming webinar with a company that is helping move the cancer conversation from ‘fight’ towards ‘cure’. Prescient Therapeutics Limited (ASX: PTX) is a biotech innovator that will be unveiling the second component of the CellPryme cell therapy enhancement platform, CellPryme-A, at the prestigious CAR-TCR Summit in Boston this week. On Tuesday, 27th September at 12pm (AEST), we will be joined by Prescient’s CEO Steven Yatomi-Clarke and Senior VP Dr Rebecca Lim for what we think will be a fascinating conversation for potential investors. Click here to attend. Reach Markets has been engaged by Prescient Therapeutics Limited to assist with their investor communications and may receive fees for its services.
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