New prime minister in Japan, ultra-low Fed and OECD

17 сент. 2020 г.

Yesterday was quite eventful for all sorts of events. For example, Japan has decided on a new prime minister to replace Shinzo Abe. Epoch is leaving for the Japanese economy (quite good one compared to the 90s) and the markets were very worried about the successor. It turned out to be Abe's right hand Yoshihide Suga. So, financial market participants breathed a sigh of relief, which triggered an increase in demand for the Japanese yen.

Another reason for the positive (if, of course, this word is appropriate to describe this situation) was given by the OECD. The organization has updated its own forecasts for economic growth in 2020. Quite unexpectedly, the forecasts were revised upward on average. China is now generally expected to increase its GDP by the end of the year.

Estimates for the US, EU and UK, as well as for the world in general, have been revised upward. Still, for a number of countries (especially emerging ones) forecasts were worsened. For example, for India, the forecast was deteriorated by more than two times. In this light, recall that sells in the Indian stock market and the Indian rupee, given the current prices of these assets, look very promising trading ideas, especially if you will take a look at the current pandemic situation in India.

The US retail sales data disappointed yesterday, its growth turned out to be much lower than expected (0.6% against the forecast of 1%), which once again reminded the markets that the economic recovery in August in the world has rapidly slowed down.

The main event of yesterday for the financial markets as a whole was the announcement of the Federal Open Market Committee meeting results. As expected, the monetary policy parameters were left unchanged. The central bank met the markets' expectations that ultra-low rates will last for a long time (13 out of 17 committee members expect rates to be unchanged until 2023). It would seem that the US stock market received a powerful reason for growth, and the dollar - for a decline. But in fact, the stock market was under pressure and the dollar was strengthening. Even Snowflake can’t help.

Perhaps this is due to a mixed revision of the Fed's forecasts for the future of the US economy. On the one hand, the central bank now expects the economy to contract 3.7% in 2020, up from a previous estimate of a 6.5% contraction. On the other hand, growth in 2021 and 2022 was revised downward to 4% and 3% from 5% and 3.5%, respectively.

Speaking about the Central Banks, we note that today the Bank of Japan and the Bank of England are announcing their decisions. Traditionally, the markets do not expect surprises. So, there is every reason to monitor these event on the background without trying to actively trade the news.

In addition, we are monitoring statistics on jobless claims, which can both increase fears about the pace of economic recovery in the US and reassure investors.