Federal Reserve Chairman Jerome Powell announced last night, as widely expected, the curtailment of its securities purchase program. Against the backdrop of the advanced recovery of the economy from the corona collapse and rising inflationary pressures, the Fed will gradually reduce the purchase volume of currently USD 120 billion monthly by USD 15 billion, and then probably stop the program by the middle of next year. Fed Governor Powell explicitly emphasized, however, that the end of the purchase program gives no indication of an immediate change in interest rates. The key interest rates will therefore remain at a record low 0.0-0.25% for some time to come. Fed Chairman Powell admitted that the current high inflation rate does not meet the definition of price stability – at +5.4%, the US inflation rate is at its highest level since 2008 –, but stressed that this is primarily due to temporary factors. Moreover, the declared goal of full employment had not yet been achieved, despite progress on the labor market. In September, the unemployment rate in the United States had indeed fallen to 4.8%. Before the pandemic, however, the rate was 3.5%.
On US equity markets, the central bank's monetary policy turnaround was well received, and the indices remained at record levels. The Dow Jones Industrial once again reached record levels and closed +0.29% higher at 36'157.58 points. The S&P 500 made even stronger gains and exited with a daily gain of +0.65% at 4'660.57 points. Things went even better on the Nasdaq technology exchange, where the indices rose by about one percent. On Asia's stock exchanges, the Fed turnaround was also received positively by the majority and Europe's stock markets should also open friendly today in view of continued favorable financing conditions.
Today's focus is on the interest rate decision by the Bank of England, which could well dare to take its first interest rate step in view of the rising inflationary pressure against the backdrop of the energy supply problems and Brexit aftermath.
Even before the Fed's announcement, ECB chief Christine Lagarde dampened the prospect of an early turnaround by the European Central Bank. Lagarde said at a conference in Lisbon that she did not expect the conditions for an interest rate tightening to be met next year. The medium-term inflation outlook remains moderate, she said, despite the current heightened inflationary pressures. The capital markets, on the other hand, are pricing in a first rate adjustment as early as mid-2022, against the backdrop of rising inflation.
According to the latest study by the labor market service provider ADP, employment growth in the private sector has accelerated recently. Accordingly, 571'000 new jobs were created in October. Analysts had expected an average increase of 400'000 jobs. Most new jobs were added in the service sector.
The US service sector gained momentum in October. According to the latest survey results from the London-based market research institute IHS Markit, the Purchasing Managers' Index (PMI) improved from 54.9 points in September to 58.7 points, even slightly more than analysts had expected. The brightening among service providers also improved the starting situation in the private sector as a whole - the corresponding PMI (composite) climbed from 55.0 to 57.6 points. According to IHS Markit Chief Economist Chris Williamson, the latest survey data point to a recovery in the US economy in the fourth quarter, after growth was slowed by the delta in Q3.
The UK services sector also saw a marked improvement in October. According to IHS Markit, the Purchasing Managers' Index for the sector rose 3.7 points from the previous month to 59.1. The industry had benefited from the easing of corona and travel restrictions. However, according to IHS Markit, service providers are struggling with an acute shortage of staff.
|08:00||GE||Factory Orders (September, m/m)||-7.7%|
|09:00||SZ||SECO Consumer Climate (Q4)||+10.0|
|09:15||SP||IHS Markit PMI Services (October)||56.9|
|09:45||IT||IHS Markit PMI Composite (October)||56.6|
|09.50||FR||IHS Markit PMI Composite (October)||54.7|
|09:55||GE||IHS Markit PMI Composite (October)||52.0|
|10:00||EZ||IHS Markit PMI Composite (October)||56.2|
|11:00||EZ||Producer Prices (September, y/y)||+13.4%|
|13:00||UK||Bank of England Monetary Policy Announcement||+0.1%|
|13:30||US||Trade Balance (September)||USD -73.3bn|
|13:30||US||Initial Jobless Claims (weekly)||281,000|
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Source: LGT Bank (Switzerland) Ltd.
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