Stocks open lower as markets digest Fed announcement

Stocks open lower as markets digest Fed announcement 150 150 Realm

Stocks have opened lower in the UK and Europe this morning as markets consider the result of the Fed’s two-day meeting. The central bank left interest rates unchanged and signalled rates are likely to remain at near-zero levels for years to come. The Bank of England meets today with no changes to interest rates expected. 

 

Global Macro

  • The Federal Reserve has left the target range for its federal funds rate unchanged at 0-0.25%, in line with market expectations and signaled it would hold them there through at least 2023 to help the economy recover from the coronavirus pandemic. The Committee will aim to achieve inflation moderately above 2% for some time so that inflation averages 2% over time and longer-term inflation expectations remain well anchored at 2%. The vote was 8-2 with Dallas Fed President Kaplan preferring to retain “greater policy rate flexibility,” and Minneapolis Fed President Kashkari in favor of waiting for a rate hike until “core inflation has reached 2% on a sustained basis.” Fed officials see the US economy shrinking 3.7% in 2020, compared to a 6.5% drop projected in June but see a slower 4% growth in 2021 (vs 5.0% earlier forecasted). The unemployment rate is expected to rise to 7.6% this year (vs 9.3%) and to fall to 5.5% in 2021 (vs 6.5%).
  • Overseas investors sold USD 88.7 billion of US assets, including short-dated instruments, in July 2020 after selling an upwardly revised USD 69.8 billion in the previous month. Meanwhile, foreigners sold USD 22.8 billion of long-term US securities, including government and corporate after buying USD 28.9 billion in the previous month. Overseas investors bought only USD 10.8 billion of Treasuries in July after purchasing USD 113 billion in the previous month.
  • Manufacturers’ and trade inventories in the US rose by 0.1 percent from a month earlier in July 2020, following six consecutive periods of declines and matching market expectations. Stocks increased at retailers (1.2 percent vs -2.7 percent in June), but dropped at manufacturers (-0.5 percent vs 0.5 percent) and at merchant wholesalers (-0.3 percent vs -1.3 percent).
  • US crude oil stocks fell by 4.389 million barrels in the week ended September 11th, 2020, following a 2.032 million increase in the previous period and compared to market expectations of a 1.271 million rise, according to the EIA Petroleum Status Report. Meantime, gasoline inventories were down by 0.381 million barrels, while markets had forecast a smaller 0.160 million decline.
  • On Wednesday: European stocks closed on a somewhat positive note, despite falling from morning highs and struggling for support for much of the session post noon. The mood was cautious as investors looked ahead to the Federal Reserve’s monetary policy announcement, due later in the day. US stocks pulled back sharply in the final hour of trading, after moving higher for most of the day. The tech-heavy Nasdaq showed a particularly steep drop, while the Dow managed to cling to a modest gain. The late-day pullback came despite a dovish monetary policy announcement by the Fed, with the central bank leaving interest rates unchanged and signalling rates are likely to remain at near-zero levels for years to come.

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