US Federal Reserve prepares to cut quantitative easing program

by JustForex

At yesterday’s Fed meeting, Jerome Powell said that the US central bank planned to start cutting the QE program shortly, but nothing was said about specific dates. However, the Rate Settlement Committee revised the statement after the meeting and indicated that the Fed might start cutting its monthly asset purchases by $120 billion as early as its next meeting on November 2-3. An interest rate hike is likely to happen in the second half of 2022. A good jobs report would support the start of the cuts in November.

The US stock market ended Wednesday’s trading higher amid the strength of the oil and gas, financial, and technology sectors. The Dow Jones Index increased by 1.00%, the S&P 500 added 0.95%, and the NASDAQ Composite jumped by 1.02%. The Dow Jones recovered by more than 300 points after a four-day decline.

European stocks followed the American ones on Wednesday due to the growth of quotes of banks and energy companies. The European market was also supported by positive news from China, where the government is trying to cut Evergrande’s debt. The British FTSE 100 added 1.5% yesterday, German DAX added 1%, French CAC 40 increased by 1.3%, Spanish IBEX 35 increased by 0.6%, and Italian FTSE MIB jumped by 1.4%.

During the Fed meeting, US 10-year bond yields initially decreased to 1.306% as the Fed was not yet ready to cut stimulus. But after Mr. In Powell’s speech, the yields increased to 1.333%, sending gold and silver prices down. Gold and silver have an inverse correlation to the dollar index and government bond yields.

Oil rose in price after a report on US crude oil inventories showed another significant decline. Crude oil inventories were -3.48 million barrels compared to the -3.02 million expected. Analysts at Goldman Sachs said a cold winter could suppress the oil market’s ability to make up for supply shortfalls, leading to a price spike with consequences for the economy. The bank said nearly 2 million barrels of oil a day could be needed for power generation and industrial purposes.

Asian currencies are falling as the Fed’s reduction plan is boosting the dollar index. But Asian stock indices take advantage of the fact that the People’s Bank of China has added liquidity to the banking system to suppress concerns about the debt problems of major real estate developer Evergrande. Hong Kong’s Hang Seng and China’s CSI 300 increased by 0.7%, while Australia’s ASX 200 added 1%. South Korea’s Kospi decreased by 0.6% after a 3-day bank holiday. Japanese stock markets are closed because of the holiday. Singapore’s consumer price index increased by 2.4% in August compared with a year earlier, contributing to a significant increase in food, housing, transport, and utility spendings.

Main market quotes:

S&P 500 (F) 4,395.64 +41.45 (+0.95%)

Dow Jones 34,258.32 +338.48 (+1.00%)

DAX 15,506.74 +158.21 (+1.03%)

FTSE 100 7,083.37 +102.39 (+1.47%)

USD Index 93.44 +0.24 (+0.26%)

• – Singapore Consumer Price Index (y/y) at 08:30 (GMT+3);
• – Switzerland SNB Interest Rate Decision (q/q) at 10:30 (GMT+3);
• – Switzerland SNB Monetary Policy Assessment at 10:30 (GMT+3);
• – German Manufacturing PMI (m/m) at 10:30 (GMT+3);
• – German Service PMI (m/m) at 10:30 (GMT+3);
• – Eurozone Manufacturing PMI (m/m) at 11:00 (GMT+3);
• – Eurozone Service PMI (m/m) at 11:00 (GMT+3);
• – UK Manufacturing PMI (m/m) at 11:30 (GMT+3);
• – UK Service PMI (m/m) at 11:30 (GMT+3);
• – UK BoE Interest Rate Decision at 14:00 (GMT+3);
• – UK BoE Monetary Policy Statement at 14:00 (GMT+3);
• – US Initial Jobless Claims (w/w) at 15:30 (GMT+3);
• – Canada Retail Sales (m/m) at 15:30 (GMT+3);
• – US Manufacturing PMI (m/m) at 16:45 (GMT+3);
• – US Service PMI (m/m) at 16:45 (GMT+3);
• – Natural Gas Storage (w/w) at 17:30 (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.