What do investors want as autumn 2023 approaches? Quite simply, they want the years 2009-2021 back. They dream of low interest rates, inflation below 2% and economic growth. All at the same time. This was the norm for more than a decade. The problem is that everything changed last year, and returning to such conditions requires rigorous and highly challenging management of the various existing levers. Will the Fed give them hope that a return to cheaper money might be on the horizon? We’ll know at 2pm ET.

The Fed has reached the stage where it’s close to curbing inflation, close to completing its rate hikes and close to bringing the US economy to its knees. This is the most sensitive period. In reality, the central bank seems (slightly) closer to curbing inflation than to destroying economic growth, but it's walking a fine line. A sustained gust, such as a surge in oil prices, could threaten its equilibrium. The Fed will most likely announce that its key rate will remain unchanged in the 5.25% to 5.50% range (today's effective rate is 5.33%, according to New York Fed data), while warning that the inflationary risk remains present, which is another way to say that there may be another round of tightening in the future. However, if the stance is too hawkish, that would risk sending financial markets into depression and the economy into recession. So, the speech should in essence be: "we're pausing and watching, but we haven't totally given up on a final rate hike should it prove necessary".

But beyond words, investors will also have at their disposal a more material indicator, the "Fed dot-plot". It records the opinions of the 18 members of the central bank's Monetary Policy Committee in response to a question along the lines of "what level will policy rates be at the end of this year, at the end of next year, at the end of next year and in the medium term? This chart (it's Chart 2 of the Summary of Economic Projections, a document published every two meetings) gives an idea of the general sentiment at the time of the meeting, but also allows us to see what has changed since the previous dot-plot. For example, whether central bankers are more tense or more serene. If they've changed their minds. Whether they see rates staying high for longer or shorter. The data also makes it possible to speculate on when rates will change direction.

Equity markets have held back in recent days in anticipation of the Fed's announcement. They're not too confident about further monetary tightening, but they're not entirely comfortable with the idea of going back to risk-taking. Yesterday's rise in the yield on 10-year US debt to 4.36%, a record since 2007, is helping to force them to be cautious. What's at stake is how long rates can be maintained at high levels. The longer, the worse for equity investors. And the longer it lasts, the more the Fed knows it risks damaging the economy. It's like walking on a tightrope.

Meanwhile, IPO fever continues unabated in the United States, where Instacart soared 40% during the session following its IPO, ending up 12% at USD 33.70. A great start, except for those who bought at the session's high and have already lost 20% of their stake. It's more or less the same price as for Arm Holdings, which arrived last week: the stock has lost 20% on its highs, but is still up 8% on its IPO price. Klaviyo will follow today. The company specializing in marketing automation solutions had managed to place its shares above the range initially announced, a sign of high demand.

In the UK, Inflation data came in early this morning with a positive surprise. Prices unexpectedly fell in August, while most analysts were anticipating a rise due to higher energy prices. This fueled hopes that the Bank of England would soon end its rate hike cycle.

Annual consumer price inflation (CPI) dropped to 6.7% last month from 6.8% in July, while 7.0% was expected in a Reuters consensus. The BoE said in July that it expected inflation in August would rise to 7.1%. Core inflation, which excludes volatile energy and food prices slowed to 6.2% in August from 6.9% in July, while 6.8% was expected.

Economic highlights of the day:

British inflation figures for August and the Fed decision are today’s highlights. The full agenda is here. 

The dollar is worth EUR 0.9350 and GBP 0.8084. The ounce of gold is stabilizing at around USD 1930. Oil lost ground, with Brent North Sea crude at USD 93.38 a barrel and WTI US light crude at USD 89.51. The yield on 10-year US debt climbed to 4.36%. Bitcoin is trading at USD 27,000.

In corporate news:

  • Boeing on Wednesday slightly raised its annual annual 20-year forecast for aircraft deliveries to China deliveries to China, expressing confidence in economic growth economic growth and demand for domestic flights.
  • Philip Morris, the maker of Marlboro Marlboro, is considering selling a stake in Vectura, its main pharmaceutical division, the Wall Street Journal Journal on Tuesday evening.
  • A consortium led by investment firm Sixth Street Partners Street Partners has entered into exclusive negotiations to acquire GreenSky, a fintech owned by Goldman Sachs, two sources familiar with the matter said on Tuesday.

Analyst recommendations:

  • Advanced medical: Liberum upgrades to buy from hold with a target price lowered from GBX 235 to GBX 230.
  • Applied material: Goldman Sachs maintains its buy recommendation with a target price of USD 152.
  • Associated british foods: BNP Paribas Exane downgrades to neutral from outperform with a target price of GBX 2325.
  • Autozone inc: BNP Paribas Exane maintains its outperform rating with a target price of USD 3,215.
  • Big technologies: Liberum maintains its buy rating with a target price of GBX 325.
  • Centrica plc: JP Morgan maintains its overweight rating with a target price of GBP 1.90.
  • Chewy inc- cl a: Oppenheimer downgrades to market perform from outperform.
  • Dollar general c: JP Morgan downgrades to underweight from neutral with a target price reduced from USD 132 to USD 116.
  • Pearson plc: Shore Capital downgrades to hold from buy with no change in target price.
  • Western digital: BNP Paribas Exane upgrades to outperform from neutral with a target price raised from USD 36 to USD 58.