Markets absorb Fed announcements smoothly

For a detailed analysis of the Fed’s announcements after its meeting, you can refer to the News sent last night. 

Unsurprisingly, the process of reducing asset purchases should start in November. Jerome Powell said that it could end by mid-2022. The Fed has insisted that this is not a sign of a subsequent rate hike, but Fed members’ forecasts seem to say otherwise, as they are now evenly split between a hike or two as early as 2022 and a status quo.

One might have thought that this news, coupled with the concomitant upward revisions to inflation and downward revisions to growth, would have a negative impact on equity markets, but they remained calm, holding on to gains made on encouraging news about Evergrande, the Chinese property developer. However, it remains unclear whether Evergrande will be able to meet the interest payments on a dollar loan today. Long-term bond yields are stable and the dollar is modestly rising, although the trend is rather the opposite this morning: the EUR/USD exchange rate is rising towards 1.172 after falling below 1.17 overnight.

Busy economic calendar today: INSEE business survey in France, preliminary PMIs in Europe and in the US, Bank of England meeting (no change expected) as well as jobless claims and leading indicator in the US. And of course the news about Evergrande. Will this challenge the optimism of the markets?