Stock market bulls do not seem to be at all afraid of tapering, which may be introduced by the Fed as early as at the end of this year, and they do not pay much attention to the fact that interest rates in the USA may rise as early as in 2022, and not in 2023 as previously assumed. Is that right?
Wednesday saw the release of the FOMC's macroeconomic projections at 20:00, with Fed chief Jerome Powell's press conference taking place at 20:30. During this time, markets could see more volatility due to significant shifts in the Federal Reserve's view of the US economy to date.
Summary of Fed Decision
The economy has made progress toward employment and inflation targets, and if progress continues to be broadly in line with expectations, a modest reduction in the pace of asset purchases may soon be warranted, Fed officials said in a September statement. The Fed also signaled that rate hikes could come sooner than expected, with 9 of 18 policymakers predicting borrowing costs will have to rise in 2022. The Fed sees economic growth at 5.9 percent in 2021, down from 7 percent in the June projection, but sees faster growth in both 2022. (3.8 percent vs. 3.3 percent in the June projection) and in 2023. (2.5 percent vs. 2.4 percent). PCE inflation is expected to be higher in 2021 (4.2 percent vs. 3.4 percent) and 2022 (2.2 percent vs. 2.1 percent). The unemployment rate is also expected to be higher this year (4.8 percent vs. 4.5 percent).
S&P500 and other indexes on the rise
On Wednesday, the Dow Jones rose 1 percent to 34258 points. The S&P 500 index rose 0.95 percent, to 4396 points. The Nasdaq gained 1.02 percent and was back near 15,000 points. U.S. index futures were up slightly this morning, and this despite Jerome Powell's words that tapering of bond purchases could occur as early as November, and that the process could end in mid-2022.
Why tapering may not be dangerous for the markets? First of all, look at the reverse repo operations in the US, which amount to almost $1.3 trillion. This means that this is money that should be taken off the system, as this is the amount of excess liquidity in the money market. Only when there are no takers for reverse repos, then monetary tightening could be problematic. The market also received positive news from struggling property developer Evergrande. The company said today that it will help investors redeem bonds.
Energy commodities and oil rises
WTI crude oil futures rose on Thursday, extending potential overnight gains amid limited supply in the U.S. after Hurricane Ida and Storm Nicholas. About 16 percent of oil production in the Gulf of Mexico has remained shut in since Wednesday. EIA data showed that crude inventories for the week ending Sept. 17 fell nearly 3.5 million barrels, more than the 2.4 million barrels expected. API data also showed that U.S. crude inventories fell by 6.1 million barrels last week, nearly 3 times what markets expected, marking the eighth consecutive weekly decline. As a result, the price of WTI crude rose above $72 per barrel.
H4 chart of WTI crude oil CFDs. Conotoxia cTrader platform
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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