Today, the market seems to be focusing on the speech of Jerome Powell, the head of the Federal Reserve, and the comments regarding the possible start of the scaling down of the asset purchase program. Jerome Powell is scheduled to begin his speech at 4 pm today.
Ahead of the Fed chairman's speech at a symposium in Jackson Hole, US stock index futures still rose slightly on Friday in an attempt to rebound after declines from the previous session. This week, all 3 major stock indexes appear to be on track to post gains. The Dow Jones is up 0.3 percent, the S&P 500 is up 0.6 percent and the Nasdaq Composite is up 1.6 percent.
Uncertainty remains among investors about whether the central bank will delay its plans to scale back stimulus or stick closely to its plan to start tapering this year. Powell's speech is expected to provide some clarification, as some of the hawkish FOMC caucus believe tapering should begin regardless as the chances of another wave of tapering this fall grow. In turn, Powell himself has often surprised with the dovish tone of his statements. Hence, there is so much uncertainty among market participants about the direction that the US Federal Reserve will take.
At this point, it is worth noting how the situation looked in 2013-2014, when the Fed, under Ben Bernanke, decided to reduce the QE program, to finally end it in the fall of 2014. During that period, the U.S. dollar seemed to gain in value and appreciated by about 4 percent, looking at its index, while the U.S. stock market, in this case the S&P 500, rose by about 8 percent. Moreover, during that period, the U.S. economy had positive real interest rates, meaning that inflation was lower than bond rates. Currently, the U.S. is facing the lowest real interest rates in decades, and in addition there is over USD 1 trillion of excess liquidity in the financial sector.
Hence, the tapering, even if it was to start soon, may not have a strong impact on the market, as it seems to be flooded with cheap money, with which there is nothing to do, and negative real interest rates may further encourage to invest in riskier assets, as safe ones do not seem to bring positive real rates of return.
According to Goldman Sachs bank, the Fed may reduce the $120 billion purchase program by $15 billion each from November this year and end the life of the current QE after another eight meetings.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 77.31% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Trade this news from Conotoxia Ltd. platforms
Go to your account
