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Fed Decision Day, Evergrande Limps on, Oil Inventories


© Reuters.

By Geoffrey Smith — The Federal Reserve may or may not announce the start of  asset ‘tapering’. China’s troubled real-estate developer purchases another few days of grace from creditors. FedEx (NYSE) fails to deliver on its guidance and earnings, while DraftKings(NASDAQ:) raises the stakes for Entain. Germany’s growth outlook dims, but oil prices surge as stockpiles fall to their lowest in three years in the wake of Hurricanes Ida and Nicholas. What you should know on Wednesday 22 September in the financial markets

1. Decision Day at the Fed

The Federal Reserve will conclude its two-day policy meeting and is expected by most analysts to give a strong signal that it will begin reducing its monthly bond purchases before the end of the year. A minority of analysts expect the process will begin within a few days. 

Any detail about the precise start of ‘tapering’, and about how long the Fed thinks it will need to phase out asset purchases completely, will be decisive in how the market reacts.

Equally important will be any changes to the ‘dot plot’ projection of Fed officials’ expectations for future interest rates. The last one suggested no rate hikes until 2023 at the earliest, but fears that inflation is proving ‘stickier’ than expected may accelerate that timeline.

The policy statement is due at 2 PM ET (1800 GMT), with Chairman Jerome Powell’s press conference due half an hour later.

2. Evergrande lives to default another day

China Evergrande Group (OTC:) said it had reached an agreement with holders of one of its mainland yuan-denominated bonds that would allow it to avoid falling into default.

While the vaguely written statement dispelled the main concern about Evergrande’s troubled real-estate group, there was no mention of future interest payments.  

After a two-day holiday on Wednesday, the Chinese stock and bond market reopened. However, they fell in the beginning but rebounded later that day. The People’s Bank of China ensured that the official yuan exchange rate remained flat at 6.44668 to the dollar.

3 Stocks set to open higher; FedEx disappoints

U.S. stock markets are set to open higher later, as fears of a disorderly sell-off in China recede, but essentially in a holding pattern ahead of the Fed’s decisions and press conference.  

By 6:15 AM ET, were up 216 points, or 0.6%, while were up in line and were up 0.4%.

Draftkings is expected to focus on its offer to Entain in the U.K. for over $16billion. FedEx also missed estimates due to its quarterly earnings results. General Mills (NYSE:) heads a sparse earnings roster for the day.

4. German recovery postponed

The growth outlook for Europe’s biggest economy worsened as the Munich-based Ifo institute cut its forecast for 2021 to 2.5% from 3.3%, due to the impact of Delta-variant Covid-19 and the ongoing stresses on German industry’s supply chains.

In recent months, record order backlogs were created by component shortages.

However, the institute said that recovery will likely be delayed rather than reversed completely. From 4.3%, it raised its growth projections for 2022 to 5.1%.

These forecasts are four days before a poll that appears to show the Christian Democrats, who hold power for the first-time in 16 years, losing their grip on the centre-right. Opinion polls don’t give any clear indications as to what kind of coalition will be generated by the elections on Sunday.

5. Oil surges on sharp drop in U.S. inventories; EIA data due

Crude oil prices rose sharply after the latest inventory data from the American Petroleum Institute showed stockpiles still falling sharply in the wake of two hurricanes that disrupted the energy production and distribution complexes in the Gulf of Mexico.

API stated that crude stocks fell by 6.1 Million barrels last week. This was much more than anticipated. The U.S. government’s data at 10:30 AM ET are thus likely to show inventories falling to a new three-year low.

By 6:25 AM ET, U.S. crude futures were up 1.6% at $71.62 a barrel, while futures were up 1.4% at $75.38 a barrel.