psaTrading
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Investors reacted positively to the Bank of Japan’s decision (BoJ). The meeting today stood the intention of the BoJ to gain greater flexibility in its asset purchase program by failing to have a fixed amount for these purchases and by failing to have a predefined target for the debt maturities that acquires. The BoJ also undertook to continue the expansion of liquidity injected into the economy until inflation reaches 2%.
Completed the meeting of the Bank of Japan, the spotlight falls on the meeting of the Fed. The big question on the US Federal Reserve meeting is whether it will increase the reference rates. Changing the perception of investors about the future of US interest rates caused an increase in the volatility of risky assets, accompanied by a fall in equities and bonds. The picture became murkier when several macroeconomic indicators for August pointed to a bending of the activity. The Fed has essentially two objectives: promoting full employment and control inflation around 2%. The first objective can be defined with a certain unanimity, which was fulfilled. The second has not yet been (inflation is located in 1.60%) neither there is a reliable estimate of when it will be reached. Against this backdrop, the money markets assign a low probability to a rise in interest rates at today’s meeting (12%) and economists point to a modest probability (average 50%). The more the Fed delay a rise in interest rates the more will lower its capacity in the future to alert and prepare investors. In short, the meeting of the Fed today will materialize in one of two outcomes. The Fed does not raise interest rates but takes on a harsh tone in the statement, almost promising a rise in December (the November meeting is very close to the presidential elections, so it is excluded as a possible date). The second scenario is a rise in interest rates together with a conciliatory statement to the market. The reaction of the bond market will dictate the reaction of the stock markets.
Completed the meeting of the Bank of Japan, the spotlight falls on the meeting of the Fed. The big question on the US Federal Reserve meeting is whether it will increase the reference rates. Changing the perception of investors about the future of US interest rates caused an increase in the volatility of risky assets, accompanied by a fall in equities and bonds. The picture became murkier when several macroeconomic indicators for August pointed to a bending of the activity. The Fed has essentially two objectives: promoting full employment and control inflation around 2%. The first objective can be defined with a certain unanimity, which was fulfilled. The second has not yet been (inflation is located in 1.60%) neither there is a reliable estimate of when it will be reached. Against this backdrop, the money markets assign a low probability to a rise in interest rates at today’s meeting (12%) and economists point to a modest probability (average 50%). The more the Fed delay a rise in interest rates the more will lower its capacity in the future to alert and prepare investors. In short, the meeting of the Fed today will materialize in one of two outcomes. The Fed does not raise interest rates but takes on a harsh tone in the statement, almost promising a rise in December (the November meeting is very close to the presidential elections, so it is excluded as a possible date). The second scenario is a rise in interest rates together with a conciliatory statement to the market. The reaction of the bond market will dictate the reaction of the stock markets.
