Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Fed Decision The Key Focus Later Today, As Evergrande Uncertainty Remains

By CMC Markets (Michael Hewson)Market OverviewSep 22, 2021 06:52
uk.investing.com/analysis/fed-decision-the-key-focus-later-today-as-evergrande-uncertainty-remains-200497248
Fed Decision The Key Focus Later Today, As Evergrande Uncertainty Remains
By CMC Markets (Michael Hewson)   |  Sep 22, 2021 06:52
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

Turnaround Tuesday may have been an apt description for markets in Europe yesterday, however the performance of US markets was much less exuberant, with the S&P500 and Dow both closing the day lower, after initially looking as if they were going to follow suit and post a decent rebound.

That failure to recover even some of Monday’s losses is a little bit concerning when it comes to the general buy the dip narrative, although US futures are now positive again. The US dollar finished the day broadly unchanged.

In Europe the recovery was much more robust, with the FTSE100 briefly managing to retake the 7,000 level before slipping back again, while the DAX and CAC40 also managed to post decent gains.

There appears to be an acceptance that an Evergrande failure is more a matter of when and not if, and the real question is how any fallout is managed, with the focus now on tomorrow’s overseas bond payment deadline, after the company missed some loan repayments earlier this week. The picture on this remains uncertain after a vague statement this morning from its Henga unit that it had reached an agreement on some of its domestic bond coupons, however there was no mention on its US dollar bond payments. The People’s Bank of China also injected extra liquidity as mainland China markets returned from their break.

Despite this injection and the return of mainland China markets, Asia markets have still seen a negative session, however the losses have been modest, suggesting sentiment may be stabilising, while the Bank of Japan left monetary policy unchanged.

Today’s European open looks set to be a positive one after yesterday’s rebound, with the main focus now shifting towards the Federal Reserve monetary policy decision, although concern over Evergrande remains.

More importantly, with Chairman Powell due to speak later, investors will be looking to determine whether recent events around surging energy prices, and Evergrande, have altered the prevailing narrative, that until a week ago, had been very much that this meeting was a waypoint on the way to the September payrolls number, which is due on October 8th. A decent number in October would more or less set in motion a timeline to the start of a tapering of asset purchases in either December or January.

Just prior to the August payrolls report being released there was a widespread expectation that today’s meeting would be the opportunity for the US central bank to signal the start of just such a program of reducing the amount of its $120bn a month bond buying program.

A monthly number of 235k put paid to that narrative, however it doesn’t mean that a tapering of bond purchase won’t happen, it just may take a little while longer to unfold, with most of the smart money on it starting in December.

The reality is there is little reason why it couldn’t happen sooner given where the US economy is now, relative to where it was in December last year. If the ECB can start reducing the amount of its PEPP program there is absolutely no reason why the Federal Reserve can’t follow suit, despite the poor August report.

There is little sign that any of the so-called hawks on the FOMC are starting to dial back their expectations of a reduction, despite the recent mixed messaging from Dallas Fed President Robert Kaplan.

The fear is that the Federal Reserve is becoming too complacent about rising inflation risks, especially with consumer prices already at its highest level since the early 1990’s.

With many of the Fed members who are calling for a scaling back of bond purchases being voting members next year, the timing of a taper still remains very much a matter of when and not if. In other words, December, or possibly later. Attention will also be focussed on the dot plots in order to determine whether any more Fed members have moved up their expectations of the first increase in interest rates, with further dots getting moved into 2022 likely to send a very hawkish signal. In the June meeting there were 7 dots indicating a rate lift off in 2022, so an increase there could well be viewed as hawkish and could also signal a faster taper. A move the other way would obviously be construed as dovish.

The one fly in the ointment given the risks emanating from events in China is whether the Fed adopts a less hawkish stance tomorrow in order to buy itself some time until the situation becomes clearer.

EURUSD – holding above the 1.1700 level for the time being, with the main support at the August lows at 1.1660. The lack of follow through suggests we might see a rebound back towards last week’s peaks at 1.1845, however we also have resistance at 1.1760.

GBPUSD – the fall through the 1.3725 level opens up the potential for a retest of the August lows at 1.3600 and possibly 1.3570. We need to see a rebound back above 1.3730 to stabilise and open a move towards 1.3800.

EURGBP – squeezed back above the 0.8560 area, which now acts as support, and opens the prospect of a move towards the highs this month at 0.8610. Still range trading for now.

USDJPY – if we fall back below the 109.00 area, we could see a move back to the 108.60 level. Resistance remains up near 110.20.

"DISCLAIMER: CMC Markets is an execution only provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed.

No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. "

Original Post

Fed Decision The Key Focus Later Today, As Evergrande Uncertainty Remains
 

Related Articles

Fed Decision The Key Focus Later Today, As Evergrande Uncertainty Remains

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The inherent concept of such investments means that they are not suitable for the investor seeking income from such investments, and are only suitable for those who have the required experience and understand the market risks. You should carefully consider your investment objectives, level of experience, and seek advice from an independent financial advisor if you have any doubts.
Continue with Google
or
Sign up with Email