The US stock market has practically frozen, as can be clearly seen on Monday trading results. Top three major stock indices closed almost without noticeable changes to Friday's closing levels.
The dynamics of the American stock market in recent years is largely related to the behavior of the foreign exchange market and the reason for such dynamics is the influence of the same factors.
Therefore, the factor of the trade war between Washington and Beijing that has dominated the last six months has faded into the background in the last month. It seems that investors have ceased to hope that the parties to the conflict will be able to agree in the near foreseeable future. Therefore, given all the negativity from this, all their attention was turned to the topic of the state of the American economy and the prospects for renewing new incentives from the Fed.
But it was also not easy here. First of all, among the Fed members, there is a fairly significant difference in assessments of the state of the US economy and the need for further easing of monetary policy. Yet, this is the main condition that allows investors to definitely understand what to expect from the world's largest regulator. For example, the President of the Federal Reserve Bank of St. Louis J. Bullard believes that it was necessary to lower the key interest rate immediately by 0.50% at the September meeting in general. In addition, he also described the state of the country's economy as pre-recessionary.
However, some of his colleagues contradict him. For example, the President of the Federal Reserve Bank of San Francisco, M. Daily, who stated that the US economy is in good shape, sees no reason to roll the national economy into recession although it supported a decrease in rates by 0.25%.
In general, the lack of understanding in the Fed itself about what to do next whether to lower rates or to start incentive measures or none. These are the main reasons for the growing uncertainty about the future course of the Central Bank. In turn, these causes not only an increase in volatility but also a drop in interest in company shares with a simultaneous increase in the attractiveness of defensive assets.
The foreign exchange market remains under the same influence. Bidders do not understand what the Federal Reserve will do and it does not allow them to be active as reflected in its fall in recent days. Also, the markets clearly do not seek to take any active steps before the expected start of a new stimulus program from the ECB, which is expected to enter into force on October 1.
Of course, besides this, another reason for concern (only in Europe) is the situation around Brexit. How this whole saga will end is extremely difficult to imagine. If Britain really leaves the EU without a deal, then this will cause a serious economic blow not only to "foggy Albion" but also to the economy of continental Europe.
Assessing all these factors that produce a state of uncertainty, we believe that the US stock market will continue to consolidate in the "side" in the near future, as well as currency pairs where the US dollar is involved.
Forecast of the day:
The EUR/USD pair continues to consolidate sideways in anticipation of the launch of a new stimulus program in the eurozone. We expect that this period will continue until the end of the month. But today, the pair can continue to decline locally if it does not grow and consolidate above 1.1000. In this case, it can continue to decline to 1.0930.
The GBP/USD pair remains a hostage to Brexit. If the price drops below 1.2410, it will continue to fall locally to 1.2285.
