The Fed’s monetary policy is the biggest theme in financial markets this week. The day after tomorrow, it will become clear how much the bank plans to lower the key interest rate, which is currently in the range of 5.25–5.50 percent.
Based on the derivatives market, investors give a higher probability to an interest rate cut of 0.50 percentage points than 0.25 percentage points.
Economists are not on the same page as the market. Information service Bloomberg’s The median forecast of 113 economists expects a decline of 0.25 percentage points.
Even among economists there is disagreement. For example J.P. Morgan expect a decrease of 0.50 percent because they think monetary policy is one percentage point too tight for the current economic situation.
Vacationing in Asia
Based on the movements of the Asian stock markets, investors’ moods seem to be expectant. For example, Bloomberg’s index of small and medium-sized companies in Asia was up 0.3 percent.
Fewer movements are also explained by the fact that the stock exchanges were closed in Japan and China.
Japan has a national holiday dedicated to honoring older people. In China, today and tomorrow are the mid-autumn festival, also known as the moon festival. Mid-autumn is also celebrated in South Korea.
Hong Kong’s Hang Seng was close to Friday’s closing reading. We received weak macroeconomic data from China and investors wondered if the country’s authorities will revive the economy.
Stock market futures are creating bullish openings for European stock exchanges.
Jeni counters
In the foreign exchange market, the Japanese yen has strengthened against several currencies recently. In July, the currency was the weakest in almost 38 years.
On Monday morning, the US dollar fetched 140.25 Japanese yen, but the reading was at 139.96 yen, the strongest reading since July 2023.
The narrowing of the difference between the yen and the dollar is explained, for example, by the monetary policy of central banks. The Bank of Japan has raised key interest rates twice this year, the Fed’s decline cycle is just beginning.
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 make an interest rate decision on Friday, but it is expected that the key interest rates will not be changed.
On Monday morning, the euro fetched 155.54 Japanese yen, 1.1097 US dollars, 0.84361 British pounds and 11.315 Swedish kronor.
Source: www.arvopaperi.fi
