By Geoffrey Smith
Investing.com — The Federal Reserve may or may not announce the start of asset ‘tapering’. China’s troubled real estate developer buys itself another couple of days’ grace with creditors. FedEx (NYSE:FDX) disappoints badly with its earnings and guidance, and DraftKings (NASDAQ:DKNG) ups the ante for Entain. Germany’s growth outlook dims, but oil prices surge as U.S. crude stockpiles fall to their lowest in three years in the wake of Hurricanes Ida and Nicholas. Here’s what you need to know in financial markets on Wednesday, 22nd September.
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. Only a minority expects the process to begin immediately.
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:EGRNY) 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.
The vaguely-worded statement removed the most immediate concern around the troubled real estate group but gave no indication of whether further interest payments on its dollar bonds would be honored on Thursday.
Chinese stock and bond markets, which reopened Wednesday after a two-day holiday, fell initially but recovered later in the day. The People’s Bank of China ensured that the official yuan exchange rate remained flat at 6.44668 to the dollar. The PBoC left its prime rate unchanged at a policy meeting earlier in the day, while the Bank of Japan also left its key rate unchanged, as expected.
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, Dow Jones futures were up 216 points, or 0.6%, while S&P 500 futures were up in line and Nasdaq 100 futures were up 0.4%.
Stocks likely to be in focus later include Draftkings, which has raised its offer for U.K.-based Entain (OTC:GMVHY) to over $16 billion, and FedEx, which badly missed earnings estimates with its quarterly results after the bell on Tuesday. General Mills (NYSE:GIS) heads a sparse earnings roster for the day.
4. German recovery postponed as election nears
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.
Order backlogs have reached record levels in recent months due to component shortages, notably semiconductors.
The institute indicated however that the recovery is likely to be postponed rather than completely derailed. It raised its forecast for 2022 growth to 5.1% from 4.3%.
The forecasts come four days ahead of a poll which appears likely to see the center-right Christian Democrats lose their hold on power for the first time in 16 years. 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.
The API said that crude stockpiles fell by 6.1 million barrels last week, far more than expected. 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 Brent futures were up 1.4% at $75.38 a barrel.