Markets in Risk-Off Ahead of This Week's Fed Meeting
19 September 2022
Sentiment has been negative so far Monday, with equity indices down circa 1% during the London session, while the USD continued in its bullish regime.
US President Joe Biden stated over the weekend that the US military would defend Taiwan in the case of a Chinese invasion. Geopolitical tensions appear to be rising at the start of the new week as a result of this statement.
Will the Fed surprise?
Prior to the two-day US Federal Reserve meeting beginning on Tuesday, when another 75 basis point interest rate rise is generally anticipated, investors are likely to exercise caution on Monday.
Given the persistence of the US inflation, the risk of a surprise 100 bps hike by the Fed still exists, likely to constrain movements before Wednesday's formal announcement.
China introduces more stimulus
The yuan dropped 0.4% to a more than two-year low of 7.0080 to the dollar, crossing the psychologically significant 7 threshold for the second day in a row.
On Monday, the People's Bank of China reduced the repo rate and accelerated cash injections into the economy in an effort to spur economic development that had been severely hampered by lockdowns due to COVID.
The University of Michigan's Consumer Sentiment Survey's one-year and five-year inflation expectations components both fell from August levels on Friday, causing the DXY to lose some of its weekly gains.
Later today, the US economic calendar will only include the NAHB Housing Index and the monthly report from the Bundesbank of Germany.