Fed fallout, BoJ and BoE preview

US stock markets tumbled after the Federal left rates on hold and upgraded its economic forecasts.

The Bank of England meeting today could be a primer for when the central bank adds more stimulus again at its November meeting.

MARKETS

The Dow Jones eased from highs on Wednesday, as investors weighed up a rout in technology and the Federal Reserve's pledge to keep rates lower for a prolonged period. 

The S&P 500 was down 0.43% while the Nasdaq slipped 1.25%. Tech stocks took a breather following a strong start of the week, with Apple falling 3% after it unveiled new iPads and Apple watches and a new bundled subscription service as well as a personal fitness service. The weakness in the Technology sector pressured the broader market to retreat from session highs offsetting the Fed's dovish policy announcement. 

Energy surged 4% as U.S oil prices rallied after crude inventories fell by 4.4 million barrels last week, confounding expectations for a build of 1.27 million barrels. Energy stocks were among the biggest gainers of the day. Financials also climbed higher even as Treasury yields moved higher despite the Fed's low-interest rate pledge. 

In Europe, the Euro Stoxx 50 was up 0.2%. In Asia, most equity markets declined this morning, running out of steam after 5 days of straight gains.

DAY AHEAD

It’s central bank double trouble – the Bank of Japan and Bank of England decide interest rates also UK catalogue retailer Next reports interim earnings.

The political context for the Bank of Japan made this meeting a little more interesting – New PM Yoshihide Suga has said he is a Abenomics-believer so the general thrust of the central bank’s QQE policy should remain the same. If the BOJ is to turn more dovish- if that’s even possible without the use of a helicopter full of money - it didn't happen at this meeting.

Japan appears to be coming out the other side of a new wave of virus infections and markets are relatively calm so there’s no need to cut rates or target a lower yield on government bonds. The BOJ upgraded its economic assessment but not to the extent that it was a big mover for the yen.

There is a growing consensus that the Bank of England will act again at its November meeting so if that’s the case, today will be a primer for markets. The end of the government furlough scheme in October coupled with the rising chance of everyone’s favourite cliff edge, a no deal Brexit– all point to action, most likely more QE come November.

If the last meeting is anything to go by, the BOE are in a bit of a muddle over negative rates. Their policy review concluded they would cause more harm than good but Governor Bailey followed it up by saying they are in the toolbox.