Fed Fallout and BoE Up Next

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%.

Stocks sold off and the US Dollar rose following the Fed’s announcement in and risk off move as the market portrayed its frustration at the Fed’s reluctance to offer any more stimulus. Whilst the Dow ended 0.1% higher the S&P and the Nasdaq dropped closing -0.4% and -1.2% lower respectively.
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.

BoE more stimulus coming (just not today)
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.

Negative rates?
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.

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.