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Weekly Market Recap

Weekly Market Recap: Fed to Start Tapering Pandemic Support

FOMC minutes revealed that the Fed is about to start gradual tapering, possibly in mid-November. Meanwhile, CPI numbers showed that inflationary pressures remain at multi-year highs, raising concerns that inflation may stay at its highest levels for longer than expected. In Australia, the job market lost jobs for the second consecutive month affected by recent lockdowns. 

USD at 1-Year High after FOMC Minutes and Upbeat Earnings 

The greenback hit new highs with growing speculations that the Fed will begin tapering its asset purchases. The US dollar index is currently trading ear 94.0 handle. The FOMC minutes released on Wednesday confirmed the committee’s intentions to scale back its pandemic stimulus by mid-November. The tapering cycle is seen to begin with an initial monthly reduction of $10 billion in treasury purchase and $5 billion in mortgage-backed securities. The minutes also revealed concerns expressed by Fed officials during the September meeting about inflation pressures that are seen to last longer than assumed. 

Regarding the economic conditions, Fed officials see that the economy is coming closer to its targets which support policy normalization by scaling back the monthly asset purchases, currently at $120 billion. The stimulus programme is expected to fully end by mid-2022. The FOMC will hold its next meeting on 2-3 November and markets are anticipating a tapering announcement.

At its September meeting, the Federal Reserve officials hinted that a reduction in asset purchases may be needed with a growing number expect an interest rate hike in 2022. The updated dot plot showed that nine members are now expecting an increase in federal funds rate next year as the economy sustains recovery towards the committee’s goals; stable inflation around 2% and maximum employment. The central bank kept the funds rate unchanged at 0.25%. 

On the data front, the annual inflation rate rose to a 13-year high of 5.4% in September from 5.3% in August. Main upward pressures came from higher cost of food which rose by the highest since December of 2011, new vehicles, and energy. On a monthly basis, CPI edged up to 0.4%. The core index, which excludes food and energy, moved up 0.2% monthly and 4% annually.

Weekly Market Recap - CPI
Annual CPI

US stocks rose sharply on Thursday boosted by better-than-expected earning reports from major banks and companies. The Dow Jones Industrial Average jumped nearly 500 points, the S&P 500 rose by more than 74 points and the Nasdaq Composite edged up 250 points. Major banks like Morgan Stanley and Bank of America have beaten earning expectations for the third quarter. 

AUD Higher on Rising Commodity Prices 

The Australian dollar appreciated to 0.7415, the highest since mid-September, supported by higher commodity prices. Also, sentiment has been boosted by the accelerating vaccine rate nationwide and reopening the economy. 

However, the labor market is still facing major headwinds and losing jobs for the second consecutive month. The Australian economy lost 138 thousand jobs in September, after 108.5 thousand jobs lost in August, and more than expected loss at 108K jobs. Full-time employment increased by 26,700 to 8,983,200 people, and part-time employment decreased by 164,700 to 3,901,400 people, according to the Australian Bureau of Statistics

The unemployment rate rose to 4.6% in September from 4.5% in August, but below market expectations at 4.8%. 

Weekly Market Recap - Unemployment Rate
Unemployment Rate
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