Macro Briefing: 20 September 2022

* Wall Street is anxious ahead of another expected rate hike on Wednesday
* Policy-sensitive 2yr Treasury yield set to rise above 4%
* Rate hikes by central banks may bring ‘string of financial crises,’ says World Bank
* US arrests at southwestern border exceed 2 million in a year for first time
* Mortgage rates rise to new 14-year high
* Sweden’s central bank lifts policy rate 100bps to fight surging inflation
* US Housing Market Index (homebuilder sentiment) fell again in September:

US housing market falls into “deep recession,” says Pantheon Macroeconomics chief economist Ian Shepherdson. “Activity tracks mortgage applications with a lag, and the early September numbers are grim, even before the full hit from the rebound in mortgage rates in recent weeks works through,” he advises in a research note sent to clients on Monday. “In short, the housing market is in a deep recession, which is already hammering homebuilders and will soon depress housing-related retail sales.”

US interest-rate hikes are also hitting Europe at a difficult time for its economy. “Our monetary policy is crushing Europe and emerging markets. The Fed is almost certainly making the hardship in Europe worse,” says Claudia Sahm, a former Federal Reserve economist and founder of Sahm Consulting. ” The Fed is almost certainly making the hardship in Europe worse.”

JP Morgan analyst predicts that the worst of the selling for US stocks has passed. “Robust earnings, low investor positioning and well anchored long-term inflation expectations should mitigate any downside in risk assets from here,” advises Marko Kolanovic in a note sent to clients. “We believe credit risk will remain contained in the US even if growth slows further, and see potential for a strong rally whenever the macro picture turns less negative.”