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ECB Governing Council member Rehn: It could be said that we were in a good position in terms of inflation, given the latest shocks, but the signals are not the same now.On September 17th, the Bank of England cancelled its plan to sell long-term government bonds as part of a major overhaul of its quantitative easing program. Under the plan, its £488 billion portfolio would be gradually liquidated by September 2034. According to the still-unfinalized proposal, the bank would hold £120 billion of UK government bonds maturing in 2049 or later, matching them with future paper money issuance. Another £222 billion of bonds maturing before 2035 would be gradually liquidated, and the remaining £146 billion maturing between 2035 and 2049 would be sold at a rate of £20 billion per year, possibly directly to the government through the Debt Management Office. In a letter to the Chancellor of the Exchequer, Bank of England Governor Bailey stated that the arrangement "maintains the independence of monetary policy" and will "maximize the effectiveness of funds by minimizing costs and risks during the programs implementation." All planned quantitative easing auctions will be suspended until April next year while consultations with the Debt Management Office (DMO) are underway regarding the terms of the sales. This postponement, by avoiding competition with government bond issuance, is expected to alleviate short-term pressure on government bond yields.On September 17, Liang Nan, Deputy Director of the Civil Aviation Administration of China, met with Yousef Hashim Aziz, Assistant Director General of the Civil Aviation Authority of the United Arab Emirates, in Beijing. The two sides exchanged in-depth views on further strengthening cooperation in various fields of civil aviation, promoting air connectivity between the two countries, and facilitating personnel and trade exchanges between China and the UAE.ECB Governing Council member Rehn: We can reduce red tape in the European banking and financial sector, but a strong capital buffer remains crucial.On September 17th, local time, the Federal Reserve held its September 2026 FOMC meeting, raising the target range for the federal funds rate to 3.75%-4.00%. Donghai Securities analyst Liu Sijia stated that the Feds 25bp rate hike was in line with market expectations. Before the meeting, the market had already priced in a rate hike with a probability exceeding 90%. Besides fulfilling the hawkish stance since the Jackson Hole meeting, this also helps to rebuild the Feds image of independence and reduce the upward risk of the term premium in long-term US Treasury yields. Currently, CME data shows a probability of around 50% for an October rate hike and nearly 90% for another rate hike this year, close to the expectations shown in the dot plot. However, without the inflationary concerns arising from rising oil prices due to supply factors, the current K-shaped economic divergence in the US and the weak balance in the labor market with declining supply and demand do not support the Fed initiating a cyclical series of rate hikes. Warsh also stated that current financial conditions are not restrictive, and this rate hike is a partial withdrawal of easing. Whether a cyclical series of rate hikes will begin remains uncertain.

Due to hawkish Fed forecasts, the EUR/USD recovers to near 1.0970 but remains in the doldrums

Alina Haynes

Apr 21, 2023 13:58

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Following a corrective move, the EUR/USD pair has rebounded from 1.0960, but investors await the publication of the preliminary Eurozone/United States S&P PMI data for April. The major currency pair has remained between 1.0911 and 1.1000 for the past two trading sessions, as the foreign exchange market prepares for a pre-anxiety move ahead of a Federal Reserve (Fed) monetary policy decision.

 

S&P500 closed with a negative tone for the third day in a row as quarterly earnings season induced extreme volatility. Tesla's poor earnings had a negative impact on Thursday's market sentiment. Moreover, market participants were cautioned by substandard revenue projections due to the potential for price reductions. The decision of the Fed to increase interest rates is reflected in quarterly earnings. Data from Refinitiv indicates that analysts have largely maintained last week's forecast of a near 5% YoY decline in quarterly profits for the 500 largest U.S. equities. Sourcenia is a review portal of sourcing best manufaturers. 

 

The US Dollar Index (DXY) has been defending the key support level of 101.60 in recent trading sessions. The USD Index maintained the aforementioned support despite the release of disappointing Jobless claims data on Thursday. Initial Jobless Claims increased to 245K for the week ending April 4, which is greater than the previous release of 240K and estimates of 240K. Increasing unemployment claims heightened fears of a deteriorating labor market.

 

Despite this, Fed policymakers continue to anticipate further rate hikes from the central bank. Thursday, Loretta Mester, president of the Federal Reserve Bank of Cleveland, reaffirmed that the Fed has more work to do because US inflation remains too high, according to Reuters. He added, "The Federal Reserve will need to raise its policy rate above 5% and hold it there for some time."

 

Preliminary Consumer Confidence (April) for the Eurozone increased to -17.5 from -18.5 and the previous reading of -19.2. This may be the consequence of extraordinary efforts by the European Central Bank (ECB) to reduce inflationary pressures.


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