The US central bank, the Fed, will say today whether it plans to cut the key interest rate by 0.25 or 0.50 percentage points from the current range of 5.25-2.50 percent.
The decision will be heard at 21:00 Finnish time.
In China, the CSI 300, composed of stocks from the Shanghai and Shenzhen stock exchanges, was close to Friday’s closing figure on Wednesday morning. Shanghai’s main index was down 0.2 percent and Shenzhen’s main index was down 1.3 percent.
Stock markets were closed in China at the beginning of the week due to holidays. The stock exchanges in Korea and Hong Kong were closed.
There was trade in Japan. The Topix was down 0.4 percent and the Nikkei 225 was down 0.1 percent. Investors chewed on Japan’s export and import figures, which fell short of economists’ forecasts.
Information service Bloomberg’s market reviews estimate that worries about the strengthening of the yen may affect investor behavior.
If the yen were to strengthen strongly against other currencies, other currencies would not be able to buy as much yen with which to buy Japanese products. This could hit Japanese export companies.
The yen rises again
In the foreign exchange market, the Japanese yen strengthened quite strongly against several currencies. For example, the currency strengthened against the dollar by 0.7 percent and against the euro by 0.6 percent.
The dollar was supported yesterday by retail trade figures, which were interpreted as undermining the Fed’s arguments for a 0.50 percentage point rate cut. The actions of central banks have a big impact on exchange rates.
When interest rates rise somewhere, more interest is paid on the debt securities of the countries in question. In theory, this directs investors to buy that country’s debt securities, which require that country’s currency to buy.
The Bank of Japan will hold a meeting on Friday, but it is not expected to change the interest rate.
The euro strengthened slightly against the dollar. It fetched 1.1120 USD, 157.22 JPY, 0.84513 GBP and 11.330 SEK.
0.50 or 0.25?
Based on interest rate derivatives, investors believe the Fed will cut interest rates by 0.50 percentage points. Information service Bloomberg’s the median of forecasts collected from economists expects a decrease of 0.25 percentage points.
“I hope the policy rate would be reduced by 0.50 percentage points, but I doubt they will reduce it by 0.25 percentage points. I hope so, because I think the interest rate is unnecessarily high”, credit rating officer Moody’sin chief economist of the analytics department Mark Zandi commented to CNBC.
He argued that the Fed has achieved its goals in terms of employment and inflation, so the interest rate should be allowed to normalize quickly.
Bank Jefferiesin economists Tom Simons disagrees with Zand: for him, the tightening of interest rates did not work exactly according to the Fed’s plans, so the bills should not be started too strongly either.
Some experts have estimated that a 0.50 percentage point interest rate cut could also spook the market: perhaps the Fed sees something worrisome in the economy, which would raise investors’ doubts about the threat of a recession.
Stock market futures rallied from a bearish opening in Europe. Wall Street was greeted with a bullish opening.
Source: www.arvopaperi.fi
