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Markets wait for outcome of Fed meeting

Markets wait for outcome of Fed meeting 150 150 Realm

The Fed’s two-day policy meeting ends today with investors looking for guidance regarding economic outlook and inflation estimates. 

 

Global Macro

  • Total industrial production in the US rose 0.4% in August, missing market consensus of 1% growth and remaining 7.3% below its pre-pandemic February level. Manufacturing production advanced for a fourth consecutive month, while mining production fell as Tropical Storm Marco and Hurricane Laura caused sharp but temporary drops in oil and gas drilling and extraction. The output of utilities also contracted.
  • WTI crude futures rose 2% to trade around $38 a barrel on Tuesday, amid concerns over supply disruptions in the US Gulf of Mexico as Hurricane Sally approaches the region. Tropical Storm Sally remains a hurricane and forced companies to evacuate rigs and halt production. OPEC also downgraded its forecast at its monthly report, it now expects that world oil demand will decline by 9.46 million bpd in 2020, more than the previous month’s estimate of a 9.06 million bpd drop. Investors will monitor OPEC+ meeting later this week, although markets don’t expect further reductions in the output.
  • The ZEW Indicator of Economic Sentiment for the Euro Area increased by 9.9 points from the prior month to 73.9 in September of 2020, the highest reading since February of 2004. In September, 77.9% of the surveyed analysts predicted an improvement in economic activity, while 4% expected it to get worse and 18.1% expected no changes. Meantime, the indicator of the current economic situation went up by 8.9 points to -80.9 and inflation expectations rose by 16.7 points to 31.
  • Hourly labour costs in the Euro Area increased 4.2% year-on-year in the second quarter of 2020, following an upwardly revised 3.7% increase in the previous quarter. It is the biggest increase in labour costs since at least 2009 as COVID-19 containment measures began to be widely introduced by Member States, leading to business and store closures. The cost of wages & salaries per hour worked grew by 5.2% and the non-wage component grew by 0.8%. By sector, hourly labour costs rose by 4.4% in services, 3.8% in industry and 2.8% in construction.
  • The UK unemployment rate rose to 4.1% in the three months to July of 2020 from 3.9% in the previous period, matching market expectations. It was the highest jobless rate since the three months to October 2018, as the coronavirus pandemic hit the labour market. For May to July 2020, an estimated 1.4 million people were unemployed, up 104,000 on the year and up 62,000 on the quarter. The quarterly rise was mainly driven by an increase for unemployed people aged 18 to 24 years and people who have been unemployed for up to six months. The number of people who are estimated to be temporarily away from work (including furloughed workers) has fallen, but it was still more than 5 million in July 2020, with over 2.5 million of these being away for three months or more. There were also around 250,000 people away from work because of the pandemic and receiving no pay in July 2020. Total pay fell by 1% on the year, the third consecutive decline in earnings.
  • On Tuesday: European stocks closed higher, reacting to upbeat data on China industrial production and retail sales, and a survey showing a notable improvement in Germany’s economic sentiment. Investors, who also digested news on the Brexit front, were looking ahead to the monetary policy announcements from the Federal Reserve, the Bank of Japan and the Bank of England. US stocks moved mostly higher during trading although the Dow gave back early gains to end the session nearly unchanged. The broader Nasdaq and S&P 500 both closed firmly in positive territory.

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