The Fed Fails to Offer Fresh Cause Causing the Global Stocks to Fall

The Fed Fails to Offer Fresh Cause Causing the Global Stocks to Fall

The Federal Reserve pledged to keep interest rates low for a long time but stopped short of offering further stimulus to shore up a battered U.S. economy. The stocks fell and the dollar advanced on Thursday.

The Federal Reserve pledged to keep interest rates low for a long time but stopped short of offering further stimulus to shore up a battered U.S. economy. The stocks fell and the dollar advanced on Thursday.

MSCI's broadest index of Asia-Pacific shares outside Japan lost 0.82%, running out of steam after five straight days of gains. Japan's Nikkei shed 0.45%, while the U.S. S&P 500 futures fell 0.87% in Asia on Thursday following a 0.46% drop in the S&P 500 on Wall Street.

Tech shares regressed. The NASDAQ futures dropped 1.13% in Asia, with the NASDAQ Composite dropping 1.25% on Wednesday.

It would keep interest rates near zero until inflation is on track to "moderately exceed" the central bank's 2% inflation target "for some time." 

Most policymakers see interest rates on hold until at least 2023, with inflation never breaching 2% over that period, according to the new economic projections released with the policy statement.

Derek Holt, head of capital markets economics at Scotiabank in Toronto, said: "Of course, sensible people wouldn't hold anyone to macro forecasts that far out so we will cross that bridge when we get to it."

He also added: "Nevertheless, markets are priced for basically one outcome here, and that is little inflation and no hikes for years to come."

There is still disappointment in the market, although with such expectations already long considered as a foregone conclusion by many investors.

Stephen Miller, an investment strategist at GSFM in Sydney stated that "by and large the Fed delivered the minimum of what had been expected by markets with a key focus on the implications of a move to 'flexible' inflation targeting."

The 10-year U.S. Treasuries yielded 0.685%, a few basis points above its levels before the Fed.

The U.S. dollar gained against most other currencies. The 10-year U.S. Treasuries yielded 0.685%, a few basis points above its levels before the Fed. The euro dropped 0.4% to $1.1767, while the Australian dollar lost 0.35% to $0.7279, having erased earlier gains made after stronger-than-expected local jobs data.

In Asia, the Chinese Yuan also dropped about 0.35% to 6.7686 per dollar, stepping back from a 16-month high hit on Wednesday. The Yen moved little at 105.06 to the dollar ahead of the Bank of Japan's policy announcement later in the day, though no major policy change is expected.

The new Prime Minister Yoshihide Suga of Japan will be the new focus. Some traders said the market may be tempted to test his resolve on the currency. He is seen by some as a strong opponent of a higher yen.

The senior trading manager at a major Japanese bank said: "One interesting speculative trade in the near-term will be too long the yen ahead of the coming long weekend in Japan.”

Oil prices gave up some of their big gains made on Wednesday on a drawdown in U.S. crude and gasoline inventories, as the dollar gains, with Hurricane Sally forcing a swath of U.S. offshore production to shut, causing a delay.

 

Economic Calendar Highlights

The Consumer Price Index (CPI) measures the change in the price of goods and services from the perspective of the consumer. It is a key way to measure changes in purchasing trends and inflation.

 

A higher than expected reading should be taken as positive/bullish for the EUR, while a lower than expected reading should be taken as negative/bearish for the EUR.

 

Bank of England (BOE) monetary policy committee members vote on where to set the rate. Traders watch interest rate changes closely as short term interest rates are the primary factor in currency valuation.

 

A higher than expected rate is positive/bullish for the GBP, while a lower than expected rate is negative/bearish for the GBP.

 

  • UK: BoE MPC Meeting Minutes: 12:00pm 

The Monetary Policy Meeting Minutes are a detailed record of the Bank of England's policy setting meeting, containing in-depth insights into the economic conditions that influenced the decision on where to set interest rates. The breakdown of the MPC members' interest rate votes tends to be the most important part of the minutes.

 

  • U.S. Building Permits (Aug): 1:30pm

Building Permits measures the change in the number of new building permits issued by the government. Building permits are a key indicator of demand in the housing market.

 

A higher than expected reading should be taken as positive/bullish for the USD, while a lower than expected reading should be taken as negative/bearish for the USD.

 

  • U.S. Initial Job Claims: 1:30pm

Initial Jobless Claims measures the number of individuals who filed for unemployment insurance for the first time during the past week. This is the earliest U.S. economic data, but the market impact varies from week to week.

 

A higher than expected reading should be taken as negative/bearish for the USD, while a lower than expected reading should be taken as positive/bullish for the USD.

 

The Philadelphia Federal Reserve Manufacturing Index rates the relative level of general business conditions in Philadelphia. A level above zero on the index indicates improving conditions; below indicates worsening conditions. The data is compiled from a survey of about 250 manufacturers in the Philadelphia Federal Reserve district.

 

A higher than expected reading should be taken as positive/bullish for the USD, while a lower than expected reading should be taken as negative/bearish for the USD.

 

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