Markets await the Fed with an eye on China

There was little significant movement in the financial markets, although equities continued to rise, with the CAC 40 breaking its record high from the internet bubble in 2000. The outcome of the Fed meeting is eagerly awaited (7pm CET), although it should come as no great surprise: the Fed is expected to announce that it is starting to reduce its asset purchases and plans to bring them to zero by mid-2022. Even the pace is predictable: it could reduce its purchases of US Treasuries by $10bn per month and its purchases of mortgage-backed securities by $5bn per month.

The markets will do what the Fed would not want them to do, i.e. immediately move to the next step, which is the rise in key rates. It is unlikely that Jerome Powell will give any really interesting information on the subject at this stage, but the press conferences (7.30pm CET) may hold some surprises. The next meeting, with the update of the macroeconomic and interest rate forecasts, should be more interesting from this point of view.

It should be remembered that before that, the final October PMI and ISM services in the US and the UK will be released, and more importantly, the ADP US private employment survey results ahead of Friday’s jobs report.

Asian markets retreated after statements from the Chinese Prime Minister warning that the Chinese economy was facing “downward pressures”, a phrase referring to an economic slowdown. Yesterday, it was a statement urging people to check their food stocks that had already fuelled some pessimism.