S&P 500: the main movement will begin during and after the Fed's press conference

 
 
 
 
 
 
 

Today, there is a correction in the financial markets after yesterday's strong movements. The dollar is declining and futures for major US stock indexes are rising. Since the opening of today's trading day, futures on the Dow Jones Industrial Average have risen 1% and futures on the Nasdaq100 technology index have risen 0.8%. S&P 500 broad market index futures were up 0.9%, trading near 4395.0 as of this writing, 90 points above yesterday's local low of 4305.00.

On Monday, stocks were down on the back of a global wave of selling in risky assets and ahead of the Fed's monetary policy meeting, which starts on Tuesday and ends on Wednesday with the release of its interest rate decision.

Many observers also attribute yesterday's sharp moves in the market to fears that the Chinese real estate giant China Evergrande Group will not be able to fulfill its debt obligations. Given the contribution of the real estate sector to the economy, investors put in quotes the possible spread of problems to other sectors of the world's largest economy.

The US dollar strengthened on Monday and, despite today's decline, is likely to receive support before the release on Wednesday of the Fed meeting statement and after, if the central bank officials signal plans to phase out bond purchases. It is also possible that the leaders of the FRS may shift the start of raising interest rates to an earlier date. Previously, according to forecasts by the Fed, this was supposed to be done only in 2023. It is noteworthy, however, that already in their July forecasts, 7 FRS leaders (out of 18) admitted a rate hike as early as next year.

Thus, the prospect of tightening the Fed's monetary policy is becoming one of the main drivers of the financial market and the strengthening of the dollar. DXY Dollar Index Futures rose on Monday to a 4-week high and 93.44. At the beginning of today's European trading session, DXY futures are near the mark of 93.12, 32 points below yesterday's high, and despite the decline, they maintain positive dynamics in the zone local 9-month high of 93.75, reached in August.

Even if the Fed leaders do not begin to change the parameters of the current monetary policy at this meeting, their any hints of possible changes towards tightening in the near future will cause a new wave of strengthening of the dollar, which, among other things, is in demand as a defensive asset in the emerging conditions of growing the number of people infected with coronavirus and the likelihood of a new trade war between China, on the one hand, and the United States and other Western countries, on the other.

As for the American stock market, then, in all likelihood, the growth of its indices will resume. Even if the Fed leaders signal their intentions to gradually roll back the stimulus policy, it will still remain soft and comfortable enough for the American economy. American stock indices continue to receive support from positive macro statistics coming from the United States.

Thus, the weekly report of the US Department of Labor, published last Thursday, indicated the continuing improvement in the state of the American labor market. Although the number of initial applications for unemployment benefits in the United States increased and amounted to 332 thousand (up from 312 thousand a week earlier), the total number of people receiving benefits fell to 2.665 million from 2.852 million a week earlier, and the average number for initial applications over the past 4 weeks on September 10, it decreased from 340 thousand to 335.75 thousand.

On Thursday (at 12:30 GMT) the next weekly report of the US Department of Labor will be published with statistics on the number of jobless claims. In particular, it is expected that the number of initial applications for unemployment benefits in the United States in the week before September 16 fell to 322 thousand, which is a positive factor for the dollar and American stock indices.

Also on Thursday will be presented fresh (September) data from the agency Markit Economics, on business activity in the manufacturing and services sectors of the US economy. Another rise in PMI is expected, well above the 50 mark, which separates the growth of business activity from its slowdown.

For today, the publication of important macro statistics in the economic calendar is not planned. In the absence of negative political news, the growth of American stock indices is likely to continue today. Their positive dynamics are likely to continue tomorrow, until the publication (at 18:00 GMT) of the Fed's decision on the interest rate, although much in the dynamics of the dollar and stock indices will depend on the rigidity of the statements of the Fed leadership at the press conference, which will begin at 18:30 (GMT). During and after the press conference, the main movement in the financial markets will begin.