Central Banks on Different Paths: US Tightens, BOJ Loosens, ECB Considers Easing

Wall Street was mostly down on Tuesday

Yesterday has been the first trading day of the week because the market has been closed on Monday for Martin Luther King Day.

The Nasdaq, on Tuesday, was the only index to report a profit, in fact, both Dow Jones and S&P 500 closed in negative.

At the end of the market session, the three big indexes closed as follows:

The S&P 500 closed at -0.20%, the Dow Jones closed at -1.14% and the Nasdaq ended the trading session at +0.14%.

The heavy tech index, Nasdaq, is on a strike of 7 consecutive positive trading days.

The reason behind the decline of the two major indexes is that the big investment banks have reported lower revenue.

US investment banks

Goldman Sachs and Morgan Stanley are two of the biggest US banks and both reported fewer earnings yesterday.

Wall Street investors have rewarded Morgan Stanley for the implementation of a clear strategy and its shares have rose 5.9%

Goldman Sachs’s shares, instead, have dropped 6.4% as investors are still not sure about their plan of action.

It is worth mentioning that all the banks in the US are expecting a possible recession and for this reason are setting aside more money than usual.

“Goldman executives said the bank increased rainy-day funds partly in response to existing credit-card balances. Executives also said they had slowed credit-card originations and tightened underwriting” according to Wall Street Journal.

Bank of Japan

The Bank of Japan has decided to maintain an ultra-loose monetary policy despite the market pressure.

By doing so, Japanese stocks rallied and the Yen dropped 2%.

EU Central Bank

The European Central Bank officials are starting to take into consideration the possibility to reduce the pace of interest-rate hikes.

There are signals that in March the rate hike will be 0,25%  however for the month of February the interest rate increase remains at 50 basis points.

US Central Bank

The Federal Reserve has implemented a very tight monetary policy to reduce inflation.

The latest CPI has shown inflation of 6.5% and the target is to arrive at 2%.

The next Fed meeting is in 14 days and in the following chart, there are available data about the probability of how much will be the next interest rate hike.

FedWatch Tool – FED rates probabilities



90.2% of investors are expecting the FED to increase the interest rates by 0.25% at the next meeting.

The remaining 9.8% are expecting a 0.50% rate increase.

The number of investors expecting a rate increase of 0.25% has slowed down by 1% compared to yesterday

No other options are considered at this time.

The next FED meeting is on 1 February 2023.

Portfolio Update

I am monitoring the short positions on stocks and ETFs and I will act accordingly.

This will allow my portfolio to make a profit if the market drops.

The fundamentals remain bearish, so I am neutral and cautious at the moment, based on the current FED monetary policy.

However, I am aiming to make a profit regardless of the market direction.

If you are already copying my portfolio, please keep the copy open.

If you are thinking of copying me, now could be the right time, if you can invest for the long term (years).

Remember to copy the open trades to optimize the copy.

Remember to set the stop loss on the copy at the minimum level, so you don’t get stopped if there is a correction.

Thank you, everyone. Have a nice day!

Steps to follow to copy my portfolio automatically:

1. Create an eToro account here: https://federicamontella.com/go/etoro/

2. Verify your account and make a deposit of at least 200 USD (you can deposit in any currency, like GBP and EUR)

3. Go to my profile page: https://federicamontella.com/go/etoro-passionforprofit/

4. Start the copy (copy open trades and set the lowest stop loss possible, to allow some movement)

5. Enjoy, it’s all automatic. You will make passive income 24/7

Let me know if you have any questions.

 

Federica Montella

eToro Popular Investor

 

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Author: Federica Montella
eToro Popular Investor, food lover and blogger. Stock trader and Popular Investor at eToro. I am on a mission to find the best restaurants and food to eat.