Youtrading UK
Português Español русский
Register Login
  • Markets
  • Charts
  • Economic Calendar
  • World
  • Economy
  • Insights
  • About Us
No Result
View All Result
Youtrading UK
  • Markets
  • Charts
  • Economic Calendar
  • World
  • Economy
  • Insights
  • About Us
No Result
View All Result
Youtrading UK
No Result
View All Result

Markets in wait-and-see mode with FOMC policy announcement incoming

by Joel Frank
22 September 2021
in Markets
0
Markets in wait-and-see mode with FOMC policy announcement incoming
414
SHARES
9.3k
VIEWS
Share on FacebookShare on TwitterShare on WhatsApp

Wednesday’s Asia Pacific session saw the return of Chinese market participants; the Shanghai Composite managed to end the session with modest gains of about 0.4% after the PBoC offer some support by pumping CNY 120B (about $18B) via 7 and 14-day reverse repos and (as expected) left its 1 and 5-year Loan Prime Rates unchanged at 3.85% and 4.65% as expected. Meanwhile, there was some positive news flow on the Evergrande front; reports emerged that the co. would make a roughly $36M onshore bond payment this Thursday, though there was no news regarding the upcoming $83M in offshore interest payments also due this Thursday. Note there were also some rumours that there might be a deal in the works with the Chinese government that would see Evergrande separated into three entities, though news desks have not been able to verify the validity of these rumours as of yet. All in all, angst regarding Evergrande has lessened a little on Wednesday, allowing markets to now shift their focus to another key market theme, this evening’s FOMC policy announcement.

In terms of what to expect from the meeting; the benchmark interest rate (the federal funds target range) will be left unchanged at 0.0-0.25% and QE buying will be left at $120B per month. New economic forecasts and a new dot-plot will be released. MUFG think FOMC’s updated dot-plot is likely not to show the median member expecting rate hikes in 2022, as the bank may fear that by signalling to markets that a rate hike is likely in 2022, this may undermine the message they have been trying to get across that the end to QE tapering and the start of rate hikes are not automatically linked. Core FOMC members like Chairman Powell have, in recent weeks, been strongly emphasising their current guidance, which says there will be no rate hikes until the US economy has reached full employment, regardless of how long this takes to achieve after the bank has finished tapering its QE programme. The end to QE tapering does not automatically start a countdown to rate hikes, the argument goes. But insistence from Fed members that QE tapering and rate hikes are unlinked will not stop investors from drawing parallels between the two. More hawkish FOMC members have in recent weeks argued that QE tapering should be swift just in case the Fed does need to start hiking rates by mid-2022. Such an argument suggests there is an assumption at the Fed that rate hikes cannot begin until after the bank has finished tapering its QE programme, which partly contradicts the insistence from core Fed members like Powell that the two are unlinked.

Given the above, if in November (when markets expect the Fed to formally announce its QE tapering plans), the Fed unveils a longer tapering timeline (i.e. that it will take until the end of 2022 to reduce net purchases to zero), this would imply that the Fed strongly expects not to hike rates over this time period. Therefore, if the dot-plot shows that a median of Fed members expects a rate hike by the end of 2022, you can take this longer, 12-month taper timeline off of the table. Sticking with the same logic, if the Fed dots do signal a hike sometime in 2022, this strongly implies that the bank thinks its QE tapering will be over (probably) by mid-2022 at the latest (in fairness, this is already the median expectation of market participants). Thus, some market participants will use today’s dot-plot not only to derive some guidance for what the Fed’s rate hike timeline is going to look like but also as to what the QE taper timeline may look like. Hopefully, rather than being left to draw inferences from the dot-plot, Chairman Powell will at least offer some hints as to what the taper timeline might look like in the post-meeting press conference. But that may be expecting too much, and there is a strong possibility that the only further information we get on tapering from Powell is something along the lines of “we are one step closer to formally announcing tapering to begin at the end of the year”, which would be in line with market expectations for a formal announcement in November, followed by commencement of actual tapering in December.

Elsewhere, it’s worth keeping an eye on events in Congress. The US House last night passed a bill suspending the debt ceiling until next December. However, this was passed along party lines and faces no chance of passing the Senate (60 votes out of 100 are needed and the Democrats on hold 50 seats – the Republicans are currently in obstructionist mode). The debt ceiling suspension thus needs to be passed via budget reconciliation (which just requires a simple majority in the Senate, which the Democrats have when you include the Vice President’s tie-breaking vote). But this may require agreement between the Democrats on their broader spending plans, which may yet be a problem. MUFG caution that we could see a repeat of 2011, “a negotiation that went right to the wire that prompted a ratings downgrade culminated in a near 20% drop for the S&P 500.” The bank’s base case is for the issue to be “sorted” but it does represent a tail risk to markets.

Ahead of tonight’s FOMC meeting, we are seeing global equities rally a little (S&P 500 futures are up about 0.5% after Tuesday’s flat session and the Stoxx 600 is up about 0.7%), global developed market bonds rise a little (US 10-year yields and German 10-year yields are both up about 1bps, with the former still ranging comfortably above 1.30% and the latter just to the south of -0.30%), and risk-sensitive commodities rally (WTI is up about $1.0 to $71.50 per barrel, Copper is up more than 2.0%). In terms of FX markets the mode is subdued; the dollar is flat, with the DXY trading within tight ranges around the 93.20 mark and within recent ranges. The somewhat improved market tone sees JPY underperforming a little and at the bottom of the G10 performance table this morning (down about 0.3% versus the US dollar). Last night’s BoJ announcement went exactly as expected (no major policy changes announced) and has not impact JPY or broader market sentiment.

GBP is also a little weaker, down about 0.1% on the session versus the buck; a number of analysts have discussed in recent days how the market might have been getting a bit ahead of themselves regarding expectations for a hawkish shift by the BoE. According to MUFG, “given what the market has being pricing over the last couple of weeks, that could lead to some kind of disappointment and a softer pound”, before continuing that for GBP to rally again, the BoE would need to lay out a timeline for raising rates as soon as early next year, which seems premature. A key risk being watched by the BoE that might ultimately result in a delay to their rate hike timeline is how the UK’s labour market deals with the phasing out of the job furlough scheme set to end this month; analysts at ING have said they expect a rise in unemployment over the coming weeks. Meanwhile, outperformance is being seen in some of the more risk/commodity price-sensitive currencies, driven predominantly by the rally in equities and commodities; NZD, AUD and CAD are each up about 0.2-0.3% on the day versus the buck. EUR and CHF are both close to flat.

The Day Ahead

Today’s FOMC policy decision, statement, new economic forecasts and new dot-plot are all unveiled at 1900BST and then there is the usual press conference with Chairman Powell at 1930BST. Some analysts have suggested that Powell, who is not a fan of the dot-plot, may seek to essentially tell markets not to read too much into what the new dot-plot is saying (note that this attempt failed in June, when the USD surged on a more hawkish than expected shift in the dots). Other events of note today include US August Existing Home Sales and Eurozone September Consumer Confidence at 1500BST and weekly official crude oil inventories at 1530BST. Focus will otherwise be on any fresh news regarding China’s Evergrande.

Tags: FedFOMCUSA500USD
Previous Post

Potential rebound for S&P 500 if Chinese authorities ease Evergrande default contagion fears

Next Post

The US dollar is weaker going into the FOMC rate decision

Next Post
The US dollar is weaker going into the FOMC rate decision

The US dollar is weaker going into the FOMC rate decision

CALL US

Categories
  • Commodities
  • Economy
  • Forex
  • Index
  • Insights
  • Markets
  • Opening of the Week
  • Sem categoria
  • Stocks
  • World

Site Map

  • Home
  • Markets
  • Charts
  • Economic Calendar
  • World
  • Economy
  • Insights
  • About Us
Português Español русский

A comprehensive website for traders, both experienced and new! Checkout our content and learn how to invest and speculate in the markets using margin traded products. Our team of educators has extensive experience and is here to help. Enjoy!

Follow us on social media

Risk Warning

All financial products traded on margin carry a high degree of risk to your capital. They are not suited to all investors, please ensure that you fully understand the risks involved, and seek independent advice if necessary.

All Rights Reserved - YouTrading UK 2020

Privacy Policy and Terms and Conditions
  • Home
  • My Academy
    • Register Now
    • Login
  • Markets
    • Opening of the Week
    • Stocks
    • Commodities
    • Forex
    • Index
  • Charts
  • Economic Calendar
  • Economy
  • World
  • Insights
  • About Us
No Result
View All Result

© 2020 YouTrading UK - Leaders in Trader Training.

We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. By clicking “Accept”, you consent to the use of ALL the cookies.
Do not sell my personal information.
Cookie settingsACCEPT
Manage consent

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary
Always Enabled
Necessary cookies are absolutely essential for the website to function properly. These cookies ensure basic functionalities and security features of the website, anonymously.
CookieDurationDescription
__cfduid1 monthThe cookie is used by cdn services like CloudFare to identify individual clients behind a shared IP address and apply security settings on a per-client basis. It does not correspond to any user ID in the web application and does not store any personally identifiable information.
_wpfuuid11 yearsThis cookie is used by the WPForms WordPress plugin. The cookie is used to allows the paid version of the plugin to connect entries by the same user and is used for some additional features like the Form Abandonment addon.
cf_use_obThis cookie is set by the provider Cloudflare content delivery network. This cookie is used for determining whether it should continue serving "Always Online" until the cookie expires.
cookielawinfo-checbox-analytics11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics".
cookielawinfo-checbox-functional11 monthsThe cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional".
cookielawinfo-checbox-others11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other.
cookielawinfo-checkbox-advertisement1 yearThe cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Advertisement".
cookielawinfo-checkbox-necessary11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary".
cookielawinfo-checkbox-performance11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance".
viewed_cookie_policy11 monthsThe cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data.
Functional
Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features.
Performance
Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.
CookieDurationDescription
YSCsessionThis cookies is set by Youtube and is used to track the views of embedded videos.
Analytics
Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.
CookieDurationDescription
_ga2 yearsThis cookie is installed by Google Analytics. The cookie is used to calculate visitor, session, campaign data and keep track of site usage for the site's analytics report. The cookies store information anonymously and assign a randomly generated number to identify unique visitors.
_gid1 dayThis cookie is installed by Google Analytics. The cookie is used to store information of how visitors use a website and helps in creating an analytics report of how the website is doing. The data collected including the number visitors, the source where they have come from, and the pages visted in an anonymous form.
Advertisement
Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. These cookies track visitors across websites and collect information to provide customized ads.
CookieDurationDescription
_fbp3 monthsThis cookie is set by Facebook to deliver advertisement when they are on Facebook or a digital platform powered by Facebook advertising after visiting this website.
fr3 monthsThe cookie is set by Facebook to show relevant advertisments to the users and measure and improve the advertisements. The cookie also tracks the behavior of the user across the web on sites that have Facebook pixel or Facebook social plugin.
IDE1 year 24 daysUsed by Google DoubleClick and stores information about how the user uses the website and any other advertisement before visiting the website. This is used to present users with ads that are relevant to them according to the user profile.
test_cookie15 minutesThis cookie is set by doubleclick.net. The purpose of the cookie is to determine if the user's browser supports cookies.
VISITOR_INFO1_LIVE5 months 27 daysThis cookie is set by Youtube. Used to track the information of the embedded YouTube videos on a website.
Others
Other uncategorized cookies are those that are being analyzed and have not been classified into a category as yet.
CookieDurationDescription
_gat_UA-42160853-21 minuteNo description
cf_ob_infoNo description
CONSENT16 years 8 months 3 days 6 hours 2 minutesNo description
SAVE & ACCEPT
Powered by CookieYes Logo