Morning Report 17th September

Main

The Fed has decided to hold its interest rate at close to zero, in their meeting yesterday. The central bank maintained an accommodative stance until at least the end of 2023 when the US should get close to maximum employment and near their 2 percent inflation target. The Fed also expects economic growth to improve from the large coronavirus-induced drop they projected in June. US markets dropped as a result of hearing this news.

Asian stocks fell, following the Fed’s plan to keep interest rates low. China, Hong Kong, Japan and South Korean shares fell among others, and Chinese technology shares dived after Donald Trump voiced disapproval over the proposed plan for China’s ByteDance to keep a majority stake in video sharing platform TikTok.

Oil dropped below $40 a barrel and the sector could struggle to draw investment due to the pandemic. Overall, oil has dropped 40 percent since the start of the pandemic due to restrictions stopping people from commuting and travelling and analysts believe that it is difficult to see where the new investments will come from.

GBP

The pound tumbled alongside some of its G7 peers in preparation for the Bank of England meeting later today. No major changes in interest rates or the bond-buying meetings is expected, but the minutes and vote split will be critical in determining the Monetary Policy Committee’s intentions.

USD

The dollar, which was hovering near two-year lows, climbed alongside a move in Treasury yields. This follows the Fed’s new dovish approach of setting a new average inflation rate of “moderately above 2 percent”. The dollar initially fell, but this was reversed when Chair Powell commented on the economic outlook.

EUR

European markets are set to follow their Asian and US counterparts as traders react to the Fed’s pledge to keep interest rates low until at least 2023. The euro region has taken steps to centralise banking regulation, although there is little sign that lenders are interested in mergers beyond national borders. The key benefit is revenue diversification, which is especially helpful if an economic shock hits one market more than others.