Market Overview

22 September 2021

An Illusory Piece of Gingerbread in a Cup of Pure Sugar-Free Tea

After the storm signal for global stocks in course of the 20th of September’s "black Monday", when the total downside correction for the Wall Street's broad market S&P 500 index reached 5.35% at a local bottom point, compared to the absolute peaks of all time two weeks earlier, the markets on both sides of the Atlantic are behaving in a much more balanced manner. 

A few hours before the end of an important meeting of the Federal Reserve (Fed), where the U.S. regulator may decide the size of specific parameters of stimulus tapering, or at least with the rhetoric tone on its proposed schedule, the Euro Stoxx 50 index stock index has happened to be bold enough to add almost 1% to European Tuesday's closing quotes. The recent price approached the 4,000-point barrier from above and turned out to be extremely short-lived. At least for now, the glass is looking to be half-full rather than half-empty, while many European investors are probably still ready to rely on the 1.85 trillion-euro envelope from the European central bank, regardless of the further move of its American colleagues. 

Whether this is a start of true and stable tendency or not, the world will know tomorrow, but for now, a very contradictory range of opinions remain the core idea for the rest of the day. It is remarkable that the leading news agencies and economic portals also made collections of expert assessments, the direction of which changed along with the direction of fluctuations in stock indices at a particular hour just the day before. 

At the moment when the S&P 500 index was adding more than a hundred points against Monday's local bottom, exceeding even the 4,400 level for a short time, and the Dow Jones industrial index was in more than three hundred points intraday surplus, the prevailing opinions in Reuters surveys contained the positive spirit based on forecasts that Fed's tapering moves is mainly priced into the market at this point already. But when the quotes of major Wall Street's indices began to actively slide down again, a rumour or justification was put forward that the Fed's projections on a first rate hike, currently expected in 2023, could surprise markets. 

"Higher interest rates are going to be problematic for the consumer and for the economy going forward," said Darren Schuringa, CEO of ASYMmetric ETFs, and that was quite a logical sentence. “If the Fed does signal an earlier rate hike [in 2022], that would be a negative shock to the equity markets, but I don't expect that,” he also added. From this particular example, it can be clearly seen that the hammock of market sentiment is not only pressed up in both sides, but already a certain ground has been prepared before the meeting so that even the simple preservation of the same timing for the first rate increase in 2023, without being shifted for 2022 could already be perceived by some investors as a kind of positive signal from the regulator. 

Such a market mood may make it easier for Fed's frontman Jerome Powell to solve the problem of how to start a moderate braking without transforming into a thriller: now even an ordinary cup of tea without sugar, accompanied by mantras about an extended period of extremely soft monetary policy may be reminiscent of a taste of sweet gingerbread. Maybe that served as a solid reason why no new broad asset sale-off happened on Tuesday, and the S&P 500 index did not try to approach, once again, to Monday's bottom of about 4,300 points, stopping the limited downside movement this time near the 4,320-point mark. Later, during the Asian night hours, the S&P 500 even managed to recover up to the 4,375 points area. 

Of course, easing of tensions surrounding Chinese property group Evergrande, also contributed to the positive rebound of stocks, as the group's main unit, Hengda Real Estate Group, said it would be able to make the nearest bond interest payment on Thursday after private negotiations with bondholders. This news is perhaps not the end of the default speculations, as an interest payment on Thursday costs $83.5 million but a second $47.5 million interest payment is coming next week, but it may help to partially avoid worries of widespread Chinese market disorders. But if the Chinese topics fade in the global background, the Fed's role for today is only to not spoil the preliminary peaceful atmosphere of the evening.

 

Disclaimer:

Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.

Lysakov Sergey
Market Focus

Material posted here is solely for information purposes and reliance on this may lead to losses. Past performances are not a reliable indicator of future results. Please read our full disclaimer.

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