Markets Update Wednesday 17/03/2021 – Fed Boost

Frankfurt – 17/03/2021

Fed Boost

Despite an improving economy, a turnaround in interest rates is out of the US Federal Reserve question. The Fed kept the interest at the low number of 0.25 per cent. All major American stock indices turned positive after the Federal Reserve’s eagerly awaited decision on interest rates was released.

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Therefore, the US stock markets are maintaining their record levels for the time being despite the threat of further inflation and can count on plenty of cheap money for the time being. On the other hand, the Fed also made clear that it expects higher inflation rates in the future, which dampened investor euphoria somewhat. This is because the interest rate and inflation fears remain on the agenda, not least because of the new government’s 1.9 trillion US dollar economic stimulus programme (which the Fed has repeatedly and vehemently demanded).

Currently, the Fed buys a whopping $80 billion worth of government bonds and $40 billion worth of mortgage-backed securities per month. A tapering discussion, i.e. how these purchases could be scaled back in the future, is not immediately on the agenda.

US Markets at a glance

After the Fed meeting and Powell’s comments, Wall Street indices went up.

The Dow Jones initially starts the trading session almost unchanged but made it into the profit zone as it progressed. With the Fed decision, the stock market barometer picked up speed and reached a new record high at 33,041.02 points; in the end, it was still enough for a gain of 0.58 per cent to 33,016.16 points. The NASDAQ Composite, meanwhile, opened on the downside but was also able to fight its way into green territory late in the day. It ended the day at 13,525.20 points, up 0.40 per cent.

A renewed rise in yields on US government bonds temporarily held back the US indices on Wednesday. Investors’ eyes were on the Fed meeting, which was scheduled for this evening.

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The Fed signalled a continuation of its extremely loose monetary policy to combat the corona crisis consequences. The current course will be maintained until the Fed’s goals are achieved, the central bank announced on Wednesday in Washington. The Fed is aiming for full employment and inflation of 2 per cent in the longer term. Because inflation has been below this level for some time, the Fed wants to tolerate more than 2 per cent inflation rates for a while.

Far East Markets at a glance

The stock markets in the Far East were treading water on Wednesday. Investors waited patiently for the Fed’s interest rate decision and accompanied statements.

The Japanese benchmark index Nikkei closed with a slight loss of 0.02 per cent at 29,914.33 points. In mainland China, the Shanghai Composite fell 0.03 per cent to 3,445.55 points, while the Hang Seng gained 0.02 per cent to 29,034.12 in Hong Kong.

Investors shied away from risk ahead of the upcoming Federal Reserve meeting. It was eagerly awaited whether and how the monetary guardians will react to the recent significant rise in bond yields.

European Markets at a glance

The European trading centres appeared listless on Wednesday, held back by the upcoming Fed meeting in the evening. As a result, the EuroSTOXX 50 started virtually unchanged and ultimately rose by a marginal 0.07 per cent to 3,853.51 points.

In Frankfurt, the DAX also rose only moderately by 0.27 per cent to 14,596 points, which was still the highest closing level ever reached. The TecDAX traded lower, ending the day down 0.38 per cent at 3,373.40 points.

Investors waited for the US Federal Reserve meeting, which was not due until after trading close in Europe. The vaccination disaster in the EU also caused irritation, as hopes for easing were postponed, with corresponding consequences for the economy.

Forex, gold, oil and crypto

The prospect of further extremely loose monetary policy in the US weighed heavily on the greenback on the foreign exchange market today. Immediately after the Federal Reserve’s monetary policy decisions were announced, the euro exchange rate soared and reached its daily high at 1.1985 US dollars.

Oil prices trended in different directions today. While the barrel price for North Sea Brent fell by 73 cents to $67.74, WTI from the USA rose by 13 cents to $64.57. The International Energy Agency IEA does not expect a turnaround on the crude oil market with drastically rising prices. It is thus countering some influential US banks’ expectations, which had recently spoken of a new “supercycle”. According to the IEA’s monthly report published on Wednesday, the available data and analyses do not point to a new supercycle.

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Precious metals and especially gold received an immediate boost after Jerome Powell speech and shot up to $1,748 per troy ounce after trending sideways for the past few days. 

Similar to stocks and precious metals, cryptocurrencies also received a decent boost, and many of the most prominent digital assets improved today. Bitcoin rose 4.4 per cent to $59,400, while Ethereum posted a gain of 2 per cent to $1,835. Cardano continued its rally, supported by news that Coinbase Pro would list ADA soon, and improved by a further 12 per cent to $1.39. ChainLink also shot up 12 per cent to $31.20, while XRP gained 2.5 per cent to $0.4750 on the daily chart. The most impressive rally can be seen with Filecoin, which improved by more than 37 per cent on the daily chart and a mind-boggling 110 per cent in the past seven days to currently $89. 

Corporate and world economic news

Economic data

In February, Japan’s exports fell again due to the Chinese New Year holiday and cold winter weather in the United States. Compared to the previous year, the minus of 4.5 per cent, which the Japanese Ministry of Finance announced in Tokyo on Wednesday, was also higher than experts had expected. This means that the slight recovery of exports in the past two months is already over again.

Inflationary pressure in the eurozone remained constant in February, as expected. Consumer prices rose by 0.2 per cent compared to the previous month and were 0.9 per cent above the level of the same month of the last year, as Eurostat announced in its second publication. EU consumer prices rose by 0.3 per cent in February compared to the previous month and by 1.3 per cent compared to the same month last year.

Retail sales in Germany fell even more sharply in January than initially reported. As announced by the Bundesbank, price-adjusted sales fell by 6.5 per cent compared to the previous month. The Federal Statistical Office had provisionally registered a decline of 4.5 per cent.

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