The Fed may start reducing the QE program next month

by JustForex

US stock indices closed without a single trend yesterday. The Dow Jones increased by 0.31%, the S&P 500 added 0.26%, and the Nasdaq Composite decreased by 0.2%. Tesla shares lost 4.3% after the US National Highway Traffic Safety began an inspection of Tesla’s Autopilot system after a series of crashes involving the company’s electric cars. Shares of Chinese electric carmaker NIO decreased by 5.9% after the death of the driver of an electric car with the autonomous driving system. According to a survey, the majority of investment banks believe that the Federal Reserve will announce a reduction in the QE program at the meeting on September 22. In this case, the reduction of stimulus will begin on December 1, 2021, and will be completed by August 1, 2022, after which the Fed will raise the interest rate by 0.25% at the beginning of 2023. Usually, a massive sale of assets is observed in the financial markets after the announcement of the QE program reduction.

European stock indices fell yesterday. The Stoxx Europe 600 composite index lost 0.5%, British FTSE 100 dropped by 0.9%, German DAX decreased by 0.3%, French CAC 40, Spanish IBEX 35, and Italian FTSE MIB lost 0.8% each. Before that day, the European markets had been rising for ten trading sessions in a row. The reason for the decrease is the investors’ concern with the global spread of a new strain of coronavirus. The German government announced its intention to sell a quarter of its 20% stake in Germany’s largest air carrier Deutsche Lufthansa. As a result, the company’s shares have decreased by 3.9%. Shares of French auto components maker Faurecia (+12%) were the leaders among Stoxx Europe 600 components.

Yesterday, the US Treasury Department held an auction on Treasury bonds, which led to a liquidity withdrawal from the banking system and a drop in government bond yields. Gold and silver have an inverse correlation to US government bond yields, so prices of the precious metals have strengthened slightly. Gold added 0.6% and silver increased by 0.39%.

Oil prices stabilized a bit. Gasoline consumption declined for the third week in a row in the US. At the same time, gasoline demand in India remained above pre-pandemic levels in the first half of August. Analysts at Goldman Sachs believe the threat of the Delta strain to the oil market is temporary and stick to their forecast of Brent prices rising to $80 a barrel in the next quarter due to a supply shortage in the market.

Asian stock indices are still under pressure. Asia-Pacific’s broadest stock index outside Japan, the MSCI, decreased by 1.1%, China’s CSI300 blue-chip index lost 1.11%, and the Shanghai Composite index decreased by 1.05%. Australia’s ASX 200 index fell by 0.98%, and Japan’s Nikkei index lost 0.11%. The drop in stock indices was mainly due to the worsening situation with Delta in the region. Markets also monitored the situation in Afghanistan. The Reserve Bank of Australia will continue to review its quantitative easing program, considering the economic conditions and the quarantine restrictions.

Main market quotes:

S&P 500 (F) 4,479.71 +11.71 (+0.26%)

Dow Jones 35,625.40 +110.02 (+0.31%)

DAX 15,925.73 -51.71 (-0.32%)

FTSE 100 7,153.98 -64.73 (-0.90%)

USD Index 92.61 +0.10 (+0.10%)

• – Australia RBA Meeting Minutes at 04:30 (GMT+3);
• – Japan Tertiary Industry Activity Index (m/m) at 07:30 (GMT+3);
• – UK Average Earnings Index (m/m) at 09:00 (GMT+3);
• – UK Claimant Count Change (m/m) at 09:00 (GMT+3);
• – UK Unemployment Rate (m/m) at 09:00 (GMT+3);
• – Eurozone GDP (q/q) at 12:00 (GMT+3);
• – US Retail Sales (m/m) at 15:30 (GMT+3);
• – US Industrial Production (m/m) at 16:15 (GMT+3);
• – US Fed Chair Powell’s Speech at 20:30 (GMT+3).

by JustForex

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.