Fed Decision, Inflation in Britain, China and Commodity Prices

17 Jun 2021

The main event of yesterday, and of the week as a whole, is the announcement of the Federal Reserve Open Market Committee two-day meeting results. Markets were expecting assurances from the Central Bank that monetary policy will remain unchanged despite a sharp rise in US inflation.

The Federal Reserve raised its forecast for headline inflation to 3.4%, which is a whole percentage point higher than the March forecast and brought closer the timing of the next increase in interest rates. The Federal Open Market Committee, which sets policy, indicated that the rate hike could occur as early as 2023 (before that, it was announced in March that the rate increase would not be observed until at least 2024). The central bank has given no guidance as to when it will begin cutting back on its aggressive bond buying program.

As we predicted, the US stock market collapsed and the dollar shot up.

The next meeting of the key Central Bank will be held last week - the Bank of England will announce its decision on the parameters of monetary policy. Taking into account yesterday's inflation data from the UK (consumer inflation rose by 2.1%, which exceeds the target of the Bank of England), the Central Bank has a formal reason to start tightening monetary policy. But he is unlikely to use it.

We have already written that China is very unhappy with the current prices for raw materials. The lion's share of the rise in prices for commodity items is accounted for by speculative activity. Not surprisingly, China continues to tighten speculative screws. This time, China has ordered state-owned enterprises to limit their presence in overseas product markets. But most importantly, the authorities also announced that they would soon dump zinc, copper and aluminum from secret national reserves on the market. After this announcement, copper prices fell by 10%.

In this light, let us recall once again our recommendation to sell commodity assets.