Fed Passes the Baton to the Bank of England, Day X for Evegrande

23 Sep 2021

The main event of yesterday was the announcement of the results of the two-day meeting of the Federal Reserve Open Market Committee. As expected, the monetary policy parameters were left unchanged. Markets were quite naturally excited about this, because the era of cheap money continues, which means that you can continue to buy at any price, even space.

In light of this reaction, the Fed should be given its due - they have achieved their overarching goal: to prepare the markets for monetary tightening, but at the same time to avoid panic and massive bursting of bubbles.
Still, if you shout "wolf" for a long time, in the end they will stop responding to these screams. For several months in a row, the Fed has been talking about tightening monetary policy, each approaching the time frame for raising the rate, but at the same time leaving the current parameters of monetary policy unchanged here and now. And the markets are gradually getting used to it.

As a result, yesterday, after all, in fact, they announced in open text that the curtailment of the quantitative easing program would begin just about, and even called the date for its complete completion (mid-2022). The rate hike was indirectly announced in 2022 (previous estimates of the start of the rate hike were in 2023). That is, the tightening of monetary policy will take place almost tomorrow, and the markets are growing against this background. Caps off to the Fed. And we cannot fail to note the total level of myopia of the participants in the US stock market. So the current prices are a gift to enjoy. We are talking, of course, about sales on the US stock market.

Today the Bank of England should have its say after the FRS. The plus / minus consensus is the same - the monetary policy parameters will remain unchanged. But inflation in Britain has also gotten out of control, and thanks to the gas crisis and a 10-fold increase in electricity prices, the situation will clearly worsen. So the Bank of England has every reason for aggressive rhetoric. In this regard, the pound today may add more than one hundred points. Even though Johnson's talks at the White House this week are clearly failing and the US-UK trade agreement should be forgotten for the foreseeable future.

The finale of the Evegrande story will be another major event of the day. If there is a default, then a new wave of panic will cover the financial markets. If they somehow come to an agreement and find money somewhere, then the demand for risky assets can jump sharply, which of course will be a mistake, since global problems will not go away from this. Developers in China will remain under the same debt burden, but with a much lower level of trust. But the real estate market in China makes up a good quarter of the country's economy.