The Fed may reduce the QE program this year

The FOMC minutes of the July meeting suggest that the reduction of the QE program may take place as soon as this year. September is just around the corner, so the labor market still needs better data before the central bank begins cutting stimulus measures. Investors' attention is now focused on the annual economic symposium that will take place next week, where Jerome Powell will disclose the details about the future plans of the Fed. Considering this news, investors began to close their positions partially. As a result, major stock indices began to decline. The S&P 500 index decreased by 1.07%, the Dow Jones lost 1.08%, and the Nasdaq decreased by 0.89%. Major indices are very likely to trade in a wide price range in the next month or two. After the announcement of the beginning of the QE program reduction, a large correction will take place in the market, so investors should rebalance their portfolios.

European stock indices were trading without a single dynamic yesterday. By the time the market closed, the composite index of Stoxx Europe 600 increased by 0.14%, British FTSE 100 decreased by 0.16%, French CAC 40 lost 0.73%. At the same time, German DAX increased by 0.28%, Italian FTSE MIB added 0.5%, Spanish IBEX 35 jumped by 1.18%. The EU consumer price index showed that the inflation rate in Europe increased from 1.9% to 2.2%, above the ECB target level of 2%. It is not clear now how the ECB will react to this, especially considering the fact that the ECB's balance sheet is already over 8 trillion euros and now equals 78.1% of Eurozone GDP versus the Fed's 36.3% and the Bank of England's 38.5%. The UK inflation decreased from 2.5% to 2%, in line with the Bank of England's target rate. But analysts believe that the UK inflation rate will rise to 4% this year.

Oil prices continue to decline. Quotes are near 3-month lows amid a stronger dollar and continuing concerns about demand forecasts due to the active spread of a new strain of coronavirus. But the supply level is still far behind the demand level, so analysts expect the growth of quotes to $80 per barrel in the mid-term.

The gold remains unchanged. As long as monetary policy remains soft, precious metal prices tend to rise. But as soon as the Federal Reserve announces it will begin cutting the QE program, gold and silver could fall heavily.

The Central Bank of Sri Lanka (CBSL) was the first in Asia to raise interest rates to curb inflationary pressures. The US Department of Transportation said it would limit passenger traffic on some Chinese carriers to 40% for four weeks after the Chinese government imposed similar restrictions on four United Airlines flights. Australia's unemployment rate fell to 4.6% (previously 4.9%), as reducing the number of working hours and a decrease in the number of people looking for work softened the consequences of quarantine in Sydney.

Main market quotes:

S&P 500 (F) 4,400.27 -47.81 (-1.07%)

Dow Jones 34,960.69 -382.59 (-1.08%)

DAX 15,965.97 +44.02 (+0.28%)

FTSE 100 7,169.32 -11.79 (-0.16%)

USD Index 93.16 +0.03 (+0.03%)

• – Australia Employment Change (m/m) at 04:30 (GMT+3);
• – Australia Unemployment Rate (m/m) at 04:30 (GMT+3);
• – US Philadelphia Fed Manufacturing Index (m/m) at 15:30 (GMT+3);
• – US Initial Jobless Claims (w/w) at 15:30 (GMT+3);
• – Natural Gas Storage (w/w) at 17:30 (GMT+3).

by JustMarkets, 2021.08.19

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.