Fundamentals: 11/1/21 - 11/5/21
Last week’s most important news: FOMC and NFP
The FOMC press conference was highly anticipated by traders and markets alike, who needed answers regarding the sudden surge in inflation. Jerome Powell, Governor of the FED, provided the FED’s answers to this highly inflammatory situation on Wednesday.
The U.S. central bank (Fed) announced Wednesday that it will begin to reduce the monetary support it has been providing to the economy since the beginning of the pandemic, thanks to the “progress” made by the economy, and while inflation is “high”.
The Fed will reduce its asset purchases, currently $120 billion per month, by $15 billion less in November and again in December – $10 billion for Treasury bills and $5 billion for MBS (mortgage-backed securities). The goal is to bring them down to zero.
The Fed’s monetary committee (FOMC) “judges that similar reductions in the pace of net asset purchases will be appropriate each month” and emphasizes that it is “prepared to adjust the pace of purchases if warranted by the evolving economic outlook,” according to a statement issued Wednesday after a meeting that began at noon Tuesday.
In other words, if inflation remains too high, the pace of asset purchase cuts will be accelerated before starting to raise policy rates, to slow price increases.
For now, rates have been kept in the 0 to 0.25% range in which they were lowered in March 2020 as the Covid-19 epidemic spread across the United States.
The Fed indicated that the US economic results were very good and that they were therefore confident that inflation would come down in the medium term, which was confirmed by the NFP on Friday. Indeed, the Non Farm Payrolls revealed numbers all better than expected, symbolizing a more than positive balance sheet for the economic health of the US.
Average Hourly Earnings: 0.4% vs 0.4% expected (neutral)
Non-Farm Employment Change: 531k vs 455k expected (positive)
Unemployment Rate: 4.6% vs 4.7% expected (positive).
Despite these very positive signs, which should bring stability to the markets, the evolution of inflation remains to be monitored in the weeks to come, as emphasized by Jerome Powell.
The rest of the economic news to watch closely this week:
Monday, November 8th
USD – Fed Chairman Powell speaks
As the head of the central bank, which controls short-term interest rates, he has more influence on the value of the nation’s currency than any other person. Traders scrutinize his public engagements, as they are often used to give subtle clues about future monetary policy.
GBP – BOE Governor Bailey speaks
The British equivalent of Jerome Powell, his words are also closely watched by traders and investors.
Tuesday, November 9th
USD – PPI
The PPI is a major indicator for measuring inflation. It is therefore one to watch closely, as inflation is at the heart of all economic discussions.
USD – Fed Chairman Powell Speaks
GBP – BOE Governor Bailey speaks
CAD – BOC Governor Macklem speaks
As the head of the central bank, which controls short-term interest rates, he has more influence on the value of the nation’s currency than anyone else. Traders scrutinize his public engagements, as they are often used to give subtle clues about future monetary policy.
Wednesday, November 10th
USD – CPI and Core CPI
Consumer prices account for the majority of overall inflation. Inflation is important for currency valuation because rising prices lead the central bank to raise interest rates out of respect for its inflation control mandate.
Thursday November 11th
AUD – Employment Change and Unemployment Rate
These news items provide an update on the economic health of the country and are a very important economic indicator.
USD, CAD, EUR – Bank Holiday
Beware, volume may be lower with the absence of the New York Session on this holiday.
We hope that this article will help you prepare for another week of trading, and that we have helped you to better understand what happened the week before. We put education first and do everything we can to help you progress.
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Have a great trading week everyone, and thank you for your loyalty.