Weekly Overview (17 – 21 September 2018): Economists worldwide pace nervously as FOMC meeting approaches

People at a conference meeting

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Last week, all eyes were set on the upcoming FOMC meeting, with many financial analysts warning that the spreads between short-term and long-term debt rates have shrunk to lows not seen since the infamous 2008 financial crisis.

The US Federal Reserve could hike its fund target from 2% to 2.25%—this is what many financial analysts forecasted last week in anticipation of the US Federal Reserve’s official rate statement.

What worried experts the most is that the US yield curve is becoming increasingly inverted, meaning that short-term rates are surpassing long-term rates—a typical indicator of an upcoming economic crisis.

As FOMC members still struggle to figure out the extent of monetary tightening needed to sustain a steady economy, investors who have grown comfortable with the Fed’s slowly climbing rates may need to rethink their business strategies should the fund target hit 2.25%—the same rate that it had maintained over 10 years ago, to an ill effect.

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The GBP Consumer Price Index report revealed that the 12-month inflation rate for August was 2.4%, or an increase of 0.1% compared to July 2018. The inflation rate was mostly affected by the rise of certain recreational and cultural goods and services, transport services, and clothing.

During the Monetary Policy Meeting Minutes, the Reserve Bank of Australia voted to leave the cash rate unchanged at 1.5% in order to support gradual economic growth and battle unemployment in the country.

In its Monetary Policy Statement, the Bank of Japan stated that it will apply a short-term interest rate of negative 0.1% to the Policy-Rate Balances in current accounts held by financial institutions at the Bank. In terms of their long-term interest rate policy, the Bank will be looking to purchase Japanese government bonds with 10-year yields of ~0%.

According to New Zealand’s GDP q/q report, the country’s economy rose by 1% for the June 2018 quarter alone following a 0.5% increase during the March 2018 quarter. Digging further we would also find out that:

– Agriculture, forestry, and fishing was up 4.1% for the period.

– Mining was down 20% for the period.

– Investment spending was down 0.1% for the period.

– GDP per capita was up 0.5% for the period.

– Real gross national disposable income was up 0.8% for the period.

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Tilray, a Canadian cannabis company, saw its shares skyrocket with more than 38% last Wednesday and reached a market capitalisation of over $19 billion at closing hour. For the past month its shares have ballooned with over 500% and the company is now among the most sought-after assets under the S&P 500 index.

Last week, Micron Technology reported that its shares have climbed 4% in after-hours trading after releasing its Q4 earnings report. The chipmaker reported earnings per share of $3.53, exceeding Wall Street estimates of $3.34 per share. Revenue also topped forecasts, with the company reporting $8.44 billion vs. estimates of $8.25 billion.

Steelcase shares gained 12% after the company released its impressive Q2 earnings report. The furniture maker reported EPS of 36 cents, or 7 cents more than what analysts predicted. Revenue also slightly came ahead of expectations with $876 million vs. a forecast of $874 million.

McDonald’s raised its quarterly dividend to $1.16 per share, or an increase of 15%. The fast food chain has gradually increased its dividends for 42 consecutive years.

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Gold & Silver

Gold started the week strong at $1201.24 to reach $1198.87 per ounce on Friday;

– On Monday, silver traded low at $14.1485, reaching $14.2341 per ounce on Friday.

Indices

– The S&P 500 reached a daily high on Friday of 2,940.91, closing at 2,929.67;

The NASDAQ reached a daily high on Friday of 7,603.86, closing at 7,531.07;

The Dow Jones reached a daily high on Friday of 26,769.16, closing at 26,743.50;

– The Nikkei 225 reached a daily high on Friday of 23,971.41, closing at 23,869.93;

Cryptocurrencies

Last week we saw a huge move up for Ripple, which gained almost 50% on Friday alone. Although a lot of the gains have now been erased, the possibility of renewed demand in other crypto pairs remains promising.

Currency pairs

The USD/CAD pair is expected to range between 1.2871 and 1.2987. On Friday, the Loonie opened at 0.7738 against its counterpart despite falling hopes of a renewed NAFTA deal.

The EUR/USD pair is expected to range between 1.1755 and 1.1803. The Euro rallied against the Greenback and reached a 10-week high in overnight trading, opening just short of 1.1758 on Friday morning.

The GBP/USD pair is expected to range between 1.3152 and 1.3277. On Friday, the base currency sharply declined against nearly all major pairs after Theresa May was shunned by EU leaders over her presentation of her Chequers plan for Brexit.