Stocks went up last week as the People’s Bank of China lowered interest rates and the European Central Bank suggested that more stimulus measures are in order. Investors are waiting this week to hear if and when the U.S. Federal Reserve will at long last raise interest rates or not. What will central banks do next seems to be the question of the day for the stock market. The Wall Street Journal notes the importance of the current Fed meeting as well the actions of other central banks.
The focus remained on central banks. The Federal Reserve’s October meeting concludes on Wednesday, with expectations for a rate rise this year having faded in recent weeks.
Uncertainty over the timing of an increase in U.S. rates is adding to investors’ cautious stance this week, said Christophe Donay, chief strategist at Swiss investment firm Pictet Wealth Management. “The bulk of the rebound is behind us. The Fed’s exit strategy remains a concern and is still ahead of us,” he said.
Investors were also looking ahead to the meeting of the Bank of Japan on Friday, at which the central bank could announce further stimulus measures. Robin Brooks, an analyst at Goldman Sachs Inc. is forecasting “substantial” easing by the central bank.
Currencies gained 0.2% against the dollar at $1.1043. Following the ECB hint at further stimulus, many analysts are forecasting a further fall in the single currency.
Global stocks rallied at the end of last week after the European Central Bank hinted it could expand its stimulus plan for the economy in December. Investors’ appetite for equities was further bolstered Friday by a rate cut from China’s central bank.
Every move by every Central Bank is analyzed for its potential to drive markets up or down. What will central banks do next is equal to quarterly financials as a predictor of the market.
What Does the Future Have in Store?
Fortune predicts an epic rally of the markets in an article laying our four reasons to be optimistic.
The truth is, global central banks are in control. They have been coordinating since 2009 to save the worldwide economy from an apocalyptic spiral. Because the crisis was global, and the structural problems remain highly intertwined globally, the only hope toward achieving a return to sustainable growth was through a coordinated effort to restore stability and confidence. And with that backdrop, they had to create incentives for people to take risk again. It has worked! With the Fed moving closer to exiting emergency policies, this past year, the QE baton has been passed from the Fed to the ECB and the BOJ.
In short the author is saying that the actions of the Fed to rescue the US and global economy have worked and the finishing touches are being put on by other central banks. If that is the case what will central banks do next? They will probably continue easing until that policy is no longer needed and then go back to their usual tasks of controlling inflation.
Will the Fed Raise Rates Now?
The Washington Post writes that the Fed will not raise rates in October although there is no assurance that they will before the end of the year.
Here are five charts that explain why it’s safe to bet the Fed will pass on raising rates this week. Sure, there will likely be at least one key official who will argue that the time to act has already passed. But there is growing doubt, both inside and outside the central bank, that the economy will be strong enough to stand on its before the year is over. This week’s gathering appears to merely be a staging ground for the real battle in December, the Fed’s last meeting of 2015.
The Fed will raise rates when the economy is strong enough and there is a risk of inflation. By the time that happens it should be apparent to everyone.