Fed Fallout & BoE Up Next
Fiona Cincotta September 17, 2020 2:40 PM
Upbeat Fed disappoints sticking to stimulus schedule, stocks sell off. BoE to pave way for further stimulus in November?
Fed, as expected kept interest rates on hold at near zero and pledged to keep them there until inflation rose significantly, through 2023. The central bank upwardly revised this year’s economic growth forecast, expecting GDP contraction of -3.7%, an improvement from -6.5%, however downwardly revised next years’ forecast to 4% growth from 5%. The Fed also sees unemployment at 7.6% by the end of the year, down from 9.3%.
The sour mood in the market carried over into Asia, shrugging off the Bank of Japan’s cautious optimism. European stocks are also pointing to a markedly weaker start as attention now turns to the BoE.
The BoE is not expected to adjust monetary policy. There is a good chance that they will highlight the growing downside risks facing the UK economy. With the Chancellor’s job retention scheme coming to an end next month, unemployment is set to almost double by the year end. Then there is the Brexit shock, with the UK so far heading for a hard, no trade deal Brexit and finally inflation is running at a 4 year low of just +0.2% in August. Given the dark clouds that are gathering on the horizon there is strong reason to believe that the BoE will pave the way for more stimulus in November.
The question is what type of stimulus? We know that Andrew Bailey finds QE a more useful tool, so that could be a safe bet. Of course, discussions surrounding negative interest rates continue to swirl as the BoE sits on the fence. Any hints that the central bank could bring negative rates into their tool box could send the Pound and financial stocks sharply lower.
Heading towards the BoE announcement the Pound is trading higher versus the Euro, thanks to some rare Brexit optimism, as Boris Johnson climbs down over internal markets bill and amid reports of tentative progress in informal Brexit talks. However, GBPUSD trades lower on US Dollar strength.
US jobless claims
Looking ahead, after the BoE attention will focus on US initial jobless claims which are expected to decline slightly to 850,000. Signs of the labour market stalling could drag on sentiment.
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.
Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.
Cryptocurrencies are not legal tender currency and trading of derivatives on Cryptocurrencies are currently not covered under any regulatory regime in Singapore. Consequently, investors should be aware they do not have protection under the Securities and Futures Act (Cap. 289). Please ensure that you are fully aware of the risks.