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All Eyes on Monetary Policy Meetings This Week

Miguel A. Rodriguez
Miguel A. Rodriguez
19 September 2023

Yesterday the stock market felt a shock due to possible delays in the supply of microchips from Taiwan and after Chinese police arrested staff of the China Evergrande Group’s wealth unit. Now, markets are waiting for the outcome of a number of monetary policy meetings this week. 

Technology stocks affected by possible delays of microchips from Taiwan

On Monday, the stock market resumed its poor performance from last week's finish.  

One reason for the decline in the indexes was worries about potential delays in the supply of microchips from Taiwan. Another factor was the rise in market interest rates (bond yields). The 10-year Tnote bond was trading at 4.45%, the highest since 2007.

FOMC meeting set for today and tomorrow

Interest rates will be primarily determined by how the Federal Reserve (Fed) perceives inflation in the strongest economy in the world in the months to come. Additional information on this topic will be available following this week’s FOMC meeting. Although the underlying trend has declined, the increase in consumer prices in August was the largest in 14 months due to an increase in gasoline prices.

The market does not anticipate interest rate increases at the latest Fed meeting, but it will closely monitor the words of the Fed’s Chief, Jerome Powell, on inflation because it could set the course for market interest rates in the near future and, consequently, for the stock and currency markets.

The Central Bank of England and Japan will meet this week  

In addition to the much-anticipated Fed’s decision, the Bank of England (BoE) and the Bank of Japan (BOJ) are both scheduled to have monetary policy meetings this week.  The BoE will meet on Thursday, September 21st and the BOJ will meet on Friday, September 22nd.

While the BOJ may give some hints about a potential shift away from a period of exceptionally accommodative monetary policy, a weakening of the UK economy may encourage the BoE to decide on one final rate hike. The Japanese Yen may strengthen as a result of a change in the BOJ’s policy towards tighter controls, which would stop the USD/JPY pair’s upward trend.

Shares of the China Evergrande Group dropped yesterday

On the other hand, the collapse of China Evergrande Group's shares, which plummeted abruptly on Monday after the police detained several of the company's management employees, is another reason that has contributed to the worsening of risk sentiment in the markets.

Early morning trading saw the stock drop as much as 25%, though some of those losses were eventually partially recovered.  This led to a 0.70 percent decline in the Hong Kong Hang Seng 50 index.

TNOTE10 montly graph September 19 2023.png

TNOTE10 monthly chart, September 19, 2023. Source: CAPEX.com WebTrader.

Key Takeaways

  • Technology stocks dropped due to rumours that microchips from Taiwan may be delayed.
  • The 10-Year Tnote bond traded at 4.45% yesterday, which is its highest since 2007.
  • Markets will closely watch the two-day FOMC meeting starting today.
  • Rising gasoline prices were behind the biggest increase in consumer prices in 14 months in August. 
  • The BoE and the BOJ will also hold monetary policy meetings this week.
  • Shares of the China Evergrande Group fell sharply after the arrest of some staff members.
  • The Hong Kong Hang Seng 50 index lost 0.70%.

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Sources: Bloomberg, Reuters 

 

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Miguel A. Rodriguez
Miguel A. Rodriguez
financial_writer

Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books.