Markets do not expect the US Federal Reserve’s Open Market Committee to announce any interest rate changes at its meeting on Wednesday. The German elections may attract more attention.
There is intrigue, but no uncertainty. The following is the summary Stefan Rondorf uses to explain markets sentiment ahead of the scheduled Federal Open Market Committee (FOMC) meeting on Wednesday, September 22.
According to Bloomberg, the body is not expected to alter interest rates and, in fact, consensus estimates suggest that they will remain in the range of 0-0.25%. The year-over-year inflation rate came in at 5.3% in August, a few tenths below expectations. This has eased some of the pressure on the Fed, which is still considering when to begin withdrawing stimulus.
“The Fed is on track to fully meet the new average inflation target, and sufficient improvement in the U.S. labor market should be achievable in the coming weeks and months. If so, by the end of the year, the amount of bond purchases or tapering could be reduced, which should no longer come as a surprise. Attention will probably turn to the timing of the first rate hike. At the moment, the first move points to the first quarter of 2023,” notes the senior strategist at Allianz Global Investors.
According to Tiffany Wilding, a US economist at PIMCO, one of the world’s largest fixed-income managers, December is the best month to begin tapering the supervisor’s purchase program. “Reports suggested last week that Fed officials may decide to taper in November. However, this would coincide with when the Treasury debt ceiling is due to be set, so we suspect a decision will be delayed until December,” he says.
Insofar as the Fed’s meeting did not raise too many doubts about its roadmap, it does not mean that markets will not continue to analyze any new macro data presented when updating their forecasts, given their obsession with inflation. Thus, they are also paying close attention to the September manufacturing and services PMIs, which will be released on Thursday.
Analysts expect the manufacturing indicator to increase 1.4 points to 62.5 points and the services indicator to rise 4.8 points to 59.5 points. New home sales data for August will be released on Friday, which is expected to show a 0.8% increase, slightly below the 1% seen in July.
Next week, investors will not only be paying attention to the Fed meeting, as the Bank of England and Bank of Japan will also meet, as well as the supervisors of South Africa, Indonesia, Brazil and Turkey. According to Bank of America, no major news is expected from the former either.
” The current inflation and labor markets data suggests the risks have shifted to the hawkish side, but it is still too early for the British supervisor to make firmer statements on the likely timing of rate hikes.” they highlight in the U.S. investment bank.
Elections in Germany
Earlier this month, just a few days before the German federal elections, the IFO index, which measures German business confidence, will be more relevant. In the latest poll, SPD candidate Olaf Scholz remains the candidate with the highest voting intentions.
During the summer months, the confidence index already showed signs of deterioration, dropping to 97.5 in August, four points below the previous month. It is predicted that this fall will deepen in September, placing it at 96.5.
Investors could get a sense of where politics in Europe will be heading based on the results of the elections in one of the main centers of power. However, investors will have to fit the forecasts of the OECD on Tuesday with the estimates recently released by the ECB. On Thursday, the Eurozone PMIs for September will serve as a thermometer.