Daily Market Update - 15 June 2023

New Zealand entered a technical recession in the Asia-Pacific region, with its first-quarter gross domestic product (GDP) declining by 0.1% compared to the previous year. This decline follows a revised 0.7% contraction in the final quarter of 2022. Meanwhile, in Japan, both the Nikkei 225 and the Topix experienced marginal falls, breaking their four-day winning streak. The Nikkei 225 closed at 33,485.49, and the Topix closed at 2,293.97 as the Bank of Japan commenced its two-day monetary policy meeting. In China, the central bank reduced its key medium-term lending rates, and the country released various economic data, including industrial output, retail sales, and house prices.

European markets are bracing for the latest monetary policy decision from the European Central Bank (ECB) and are expected to open with a negative outlook. The ECB is anticipated to raise its benchmark policy rate by 25 basis points during its meeting on Thursday. Moreover, the ECB is likely to emphasize that future rate decisions will be influenced by data, given the prevailing uncertainties affecting inflation and growth prospects.

On the other hand, the Federal Reserve, in its recent announcement, maintained its key borrowing rate within the target range of 5%-5.25%. However, it was the release of the dot plot, representing Fed members' rate projections, that caused market fluctuations. The dot plot revealed the central bank's projection of two more rate hikes, assuming they continue at quarter-point increments. Fed Chairman Jerome Powell indicated that the committee's next meeting in July remains significant, suggesting that a quarter-point hike is not predetermined.

The dot plot also included rate expectations from 18 members of the Federal Open Market Committee for 2023 and beyond. Four members predicted one more rate increase this year, while nine expected two. Two additional members anticipated a third hike, and one member predicted four more hikes. Only two members indicated no further rate hikes in 2023. The central bank also revised its forecasts for the next two years, now projecting a fed funds rate of 4.6% in 2024 and 3.4% in 2025, up from the previous forecasts of 4.3% and 3.1% respectively.