Jackpot has not been hit
Now, any positive economic data must support stock markets
The key moment of fall is over. The market has been hardly surprised that FRS has left rates at the previous level. The Federal Reserve has managed to achieve the impossible - to puzzle investors not with the consequences of rate increase, but rather with some global negative, which, for the first time, was named as the reason for transfer of dates. In general, much was said before the event; therefore, let's note only some main moments regarding this fact:
- The following words were included in the standard phrases of the accompanying statement: "global limitations of economic activity" and "control of economic events abroad". It is not clear how those risks will be evaluated, but they will be clearly connected with low oil prices (including Canadian problems), overrated dollar, the stock market crisis, developing markets (in the first place - China), widening of spreads, and tightening of financial conditions.
- The wording regarding temporary effect of low oil prices and high dollar rate by 2015 as factor of influence on rate increase was finally removed from Yellen's statement.
- Now, the increase of GDP forecasts for the current year speaks of the fact that the rate increase in October (and even in December 2015) is unlikely; however, the fact of increasing of national debt ceiling by the US Congress until FRS meeting on October 28 may lead to the fall of dollar and stop of oil prices - then the rates will have a chance.
- The inflation below target 2% is still considered a temporary factor.
- Rate decrease scenario to negative values (as one of FRS members expects) in the nearest future is not considered as serious.
- The threat of rate increase at each meeting has been declared, and if the situation in the US and in the world does not, at least, improve next month, rate increase will be quite likely in December.
- Lowering of GDP forecast for three following years from 2016 and long-term ceiling on rates in the midst of "balanced risks of economy and labor market" produces sharp dissonance with recent statements regarding steady and irrevocable development. That is still quite difficult for understanding.
The statement regarding rates coincided with the G-20 Summit of Finance Ministers and Central Bank Governors. Yellen is rather worried about NBC's initiatives regarding free use of Chinese currency and reserves of the Bank of China in American securities than the Chinese economy. China's demand to retain American rates at the previous level in exchange for the absence of further devaluation of yuan could have been the subject of mutual agreements, which resulted in retention of rates at the previous level. ECB lowered the ceiling for funding banks in the framework of ELA from 89.1 bln to 88.9 bln euros at the request of the Bank of Greece due to voiced improvement of the general situation and stabilization of private deposits. Greece has consolidated its place in Eurozone; therefore, the results of Sunday election is not the most important event. However, the new reelection without government coalition harmonized in the right way could lead to a failure in meeting the conditions of aid provision and another default; however, so far, the results of actions taken by the alliance Syriza-"Independent Greeks" have been quite favorable. Quick forming of government will add positive to markets, including that for EUR growth. It is more important that Greece became one the countries that suffered from the inflow of Syrian refugees; there is certainly no money for them in the Greek budget. Europe will have to finance that, too.
Now, any positive economic data must support stock markets. Strong data from the USA will increase dollar, and positive data from Eurozone will lower expectations regarding expansion of Euro-QE (German producer price index did not bring any good news on Monday). A large number of statements will continue "explaining" that decision to those of dull apprehension; Yellen's report on inflation made on the night from Thursday to Friday can be considered as the main one; however, the old lady usually balances between serving two masters, that is why it will be safer to listen to rank and file FRS members. Comments made by many ECB members along with Draghi's speech (Wednesday) in the European Parliament Committee must add drive regarding euro. In case of verbal interventions with the threats to expand ECB QE, we can expect the decline of EUR/USD.
A wide flat is expected practically on all markets in the nearest weeks. After FRS statements everybody is cautious, which means that a crash can be caused force majeure circumstances only. We should keep our ears open to comments regarding the referendum in Great Britain on EU membership in March 2016 - GBP can suffer again following reckless statements. After working off the Thursday high to the initial levels in EUR/USD, we should wait for a technically decreasing flat (Monday has already produced a decrease by 120 points) with targets at 1.1150-1.1000-1.1050. Upward offers are at levels 1.1230-1.1250-1.1280, there may be a movement towards them after Draghi's speech on Wednesday, and further, targets in area 1.1330 may be relevant. Going up higher is unlikely.
- The following words were included in the standard phrases of the accompanying statement: "global limitations of economic activity" and "control of economic events abroad". It is not clear how those risks will be evaluated, but they will be clearly connected with low oil prices (including Canadian problems), overrated dollar, the stock market crisis, developing markets (in the first place - China), widening of spreads, and tightening of financial conditions.
- The wording regarding temporary effect of low oil prices and high dollar rate by 2015 as factor of influence on rate increase was finally removed from Yellen's statement.
- Now, the increase of GDP forecasts for the current year speaks of the fact that the rate increase in October (and even in December 2015) is unlikely; however, the fact of increasing of national debt ceiling by the US Congress until FRS meeting on October 28 may lead to the fall of dollar and stop of oil prices - then the rates will have a chance.
- The inflation below target 2% is still considered a temporary factor.
- Rate decrease scenario to negative values (as one of FRS members expects) in the nearest future is not considered as serious.
- The threat of rate increase at each meeting has been declared, and if the situation in the US and in the world does not, at least, improve next month, rate increase will be quite likely in December.
- Lowering of GDP forecast for three following years from 2016 and long-term ceiling on rates in the midst of "balanced risks of economy and labor market" produces sharp dissonance with recent statements regarding steady and irrevocable development. That is still quite difficult for understanding.
The statement regarding rates coincided with the G-20 Summit of Finance Ministers and Central Bank Governors. Yellen is rather worried about NBC's initiatives regarding free use of Chinese currency and reserves of the Bank of China in American securities than the Chinese economy. China's demand to retain American rates at the previous level in exchange for the absence of further devaluation of yuan could have been the subject of mutual agreements, which resulted in retention of rates at the previous level. ECB lowered the ceiling for funding banks in the framework of ELA from 89.1 bln to 88.9 bln euros at the request of the Bank of Greece due to voiced improvement of the general situation and stabilization of private deposits. Greece has consolidated its place in Eurozone; therefore, the results of Sunday election is not the most important event. However, the new reelection without government coalition harmonized in the right way could lead to a failure in meeting the conditions of aid provision and another default; however, so far, the results of actions taken by the alliance Syriza-"Independent Greeks" have been quite favorable. Quick forming of government will add positive to markets, including that for EUR growth. It is more important that Greece became one the countries that suffered from the inflow of Syrian refugees; there is certainly no money for them in the Greek budget. Europe will have to finance that, too.
Now, any positive economic data must support stock markets. Strong data from the USA will increase dollar, and positive data from Eurozone will lower expectations regarding expansion of Euro-QE (German producer price index did not bring any good news on Monday). A large number of statements will continue "explaining" that decision to those of dull apprehension; Yellen's report on inflation made on the night from Thursday to Friday can be considered as the main one; however, the old lady usually balances between serving two masters, that is why it will be safer to listen to rank and file FRS members. Comments made by many ECB members along with Draghi's speech (Wednesday) in the European Parliament Committee must add drive regarding euro. In case of verbal interventions with the threats to expand ECB QE, we can expect the decline of EUR/USD.
A wide flat is expected practically on all markets in the nearest weeks. After FRS statements everybody is cautious, which means that a crash can be caused force majeure circumstances only. We should keep our ears open to comments regarding the referendum in Great Britain on EU membership in March 2016 - GBP can suffer again following reckless statements. After working off the Thursday high to the initial levels in EUR/USD, we should wait for a technically decreasing flat (Monday has already produced a decrease by 120 points) with targets at 1.1150-1.1000-1.1050. Upward offers are at levels 1.1230-1.1250-1.1280, there may be a movement towards them after Draghi's speech on Wednesday, and further, targets in area 1.1330 may be relevant. Going up higher is unlikely.
