Breaking News: Fed Decision Day
The US Federal Reserve is going to raise interest rates again, but by how much? In Russia, a partial mobilization of 300,000 reservists has been announced, which caused a new increase in the dollar and European gas prices.
US prefabricated home sales data are due out, while homebuilder Lennar will report quarterly earnings. In the UK, Prime Minister Liz Truss is preparing another energy relief package and the US government is to release weekly data on oil inventories amid growing concerns about global oil demand. Here’s what you need to know about the financial market on Wednesday, September 21st.
1. Fed Decision Day
The Federal Reserve will again raise the interest rate in the US; the market will be divided over whether to expect it to rise by 75 basis points, as it did last time, or by a whole percentage point. Another surprise in the form of rising US inflation in August swayed some analysts towards the latter option, although the consensus is still at 75.
More important is likely to be the Fed’s so-called “point plan,” which shows what bank officials expect rates to be in the next couple of years. This should signal how high the central bank thinks the rate should go up and how long it will stay high before inflation can be declared beaten. Short-term interest rate futures suggest next year’s peak at between 4.25% and 4.5%, about 2 percentage points higher than today.
The Fed’s decision will be made, as usual, at 14:00 ET (18:00 GMT), and the press conference of its head, Jerome Powell, will be held half an hour later.
2. Russia surprised by partial mobilization
Russian President Vladimir Putin surprised the West on Wednesday by announcing a partial mobilization of the country’s reservists.
The Russian President said that mobilization will be limited to those who have already served in the armed forces and have relevant experience and training. Defense Minister Sergei Shoigu said in a subsequent televised address that only 300,000 people would be affected by the mobilization.
3. The US market will open higher; U.S. home sales data pending, while GAP cuts jobs
Stock indices in the US will open moderately higher, despite the events in Russia, but, in fact, will remain in a state of expectation before the Fed meeting, which will take place a little later.
By 6:40 am ET, Dow Jones futures were up 70 points, or 0.2%, while S&P 500 futures were up 0.2% and Nasdaq 100 futures were largely unchanged. On Tuesday, the 3 underlying money indexes lost about 1% each in the turmoil leading up to the Fed meeting.
Later, home builder Lennar (NYSE:LEN) will take center stage, and will report results at the same time US August home sales data are released. General Mills (NYSE:GIS) is also due to report today. Still in the spotlight is Gap (NYSE:GPS), which will cut 500 corporate jobs, according to a Wall Street Journal report.
4. Energy support in the UK and the nationalization of Uniper
New British Prime Minister Liz Truss has announced a package of incentives for businesses to help them pay their electricity bills this coming winter. The package provides for capping electricity and gas prices by approximately half of the current spot market price for 6 months. A more selective benefit scheme will then apply.
The £40bn ($45.5bn) decision is the second major financial package announced by Truss to tackle the energy crisis. In response, the pound sterling fell to a new 37-year low, spooked by earlier published data showing a significant increase in government borrowing due to an interest rate hike.
The European energy crisis has meanwhile taken another victim, this time in Germany, whose federal government has agreed to nationalize Uniper (ETR:UN01), the country’s largest gas supplier, whose finances have been crippled by Russia’s shutdown.
French Finance Minister Bruno Le Maire has asked the EU to delay a planned relaxation of state aid rules to help businesses weather the winter.
5. Oil has risen in price due to Putin’s decision; awaiting data from EIA
Crude oil prices rose sharply as the market began to factor in a higher geopolitical risk premium following President Putin’s decision.
By 6:40 am ET, WTI futures were up 2.4% to $85.95 a barrel, while Brent futures were up 2.3% to $92.74 a barrel.
Another highlight of the day will be last week’s US oil inventory data, with crude inventories expected to rise by 2.16 million barrels. Data from the American Petroleum Institute, released on Tuesday, beat expectations, showing an increase in inventories of just over 1 million barrels.