Weekly Market Wrap 14-September to 18-September/2020

Marius Paun | London, UK | Senior dealer | Friday 18th September 2020

The US Fed Wants Inflation At All Costs, Even Offering A Detailed Explanation On The Subject

The last FOMC interest rate meeting before November US Presidential elections took place this week. As was widely expected, the Federal Reserve committee indicated they will maintain interest rates near zero for more than 3 years, through 2023, in order to achieve its 2% average inflation target. The statement said that because inflation is persistently below the target, the FOMC will aim for inflation rising ‘moderately above 2% for some time so that inflation averages 2% over time’. The stock markets were up in early trading but eventually turned south with the Dow closing marginally higher, S&P and Nasdaq down for the day.

China’s Customs Tariffs Commission announced it will extend tariffs exemption on some US imports for a year. Some analysts have pointed out that under phase 1 of the Trade deal with the US, Beijing hit just under 50% of the agreed target. In the meantime, China’s industrial production and retail sales numbers for August both beat expectations. On another note, the World Trade Organization has ruled that the US tariffs on China violate trade rules.

In the UK, Prime Minister Boris Johnson won another vote in the Parliament that will effectively break the existing treaty – the Withdrawal Agreement, he signed with the European Union. Interestingly, a number of MPs who voted last year for the agreement have now changed their minds and voted against it. As expected, the Bank of England voted to leave its benchmark interest rate on hold at 0.1% and the asset purchasing program unchanged at £745 billion.

Elsewhere the UK Chancellor Rishi Sunak was adamant he will not extend the furlough scheme deadline beyond October this year but promises to be ‘creative’ in helping people stay in or find new jobs. We also learned that US Presidential nominee Joe Biden has weighed in on the Brexit saga, saying that any UK-US trade deal must be conditional on the Good Friday agreement staying in place…. It could get tricky for Boris Johnson.

At the State of the European Union address, President of the European Commission Ursula von der Leyen said that capital markets union and banking union must be completed. She added that the current climate should be seen as an opportunity to implement structural reforms and that now is not the time to withdraw fiscal support.

We saw another relative quiet week for Gold prices trading between a low of $1932 and a high of $1973. The precious metal was around $1952 per oz going into the weekend. Analysts point out that interest rates lower through to 2023 in the US, should provide support on the long term.

OPEC cuts its forecast for global crude oil demand by 700,000 barrels per day in 2020 and 1.1 million barrels in 2021. The OPEC+ meeting this week did not announce any output cuts but members vowed to get production back to normal levels. The US Department of Energy has released its weekly oil inventories showing a drop of 4.38 million barrels versus expectations for a build of 2.07 million barrels.