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The stock markets have now seen the ‘top of the Fed stimulus’ unless these two things happen



U.S. Federal Reserve Chairman Jerome Powell said more fiscal stimulus was expected from Congress.

Eric Baradat / Agence France-Presse / Getty Images

It seems to be a tough day for the markets.

Investors were left disappointed by the Federal Reserve’s action – or lack thereof – late Wednesday, as the central bank could not indicate any new stimulus. The Fed said it planned to keep interest rates almost zero until the end of 2023 at the earliest, when President Jerome Powell gave a cautious perspective.

In our today’s call, Lena Komileva, chief economist at G-Plus Economics, said markets have now seen “the peak of the Fed stimulus”, ruling out a government failure or market shock.

“The Fed’s new inflation framework has not led to a new political regime or action, but to a flatter political cycle that continues to provide greater reflection on the economy’s adjustment to a new co-COVID standard,” she said.

“This reinforces our view that the markets, with the exception of a new exogenous shock to the economy or a fiscal error that did not bring fresh support to the post-election recovery, have seen the peak of the Fed stimulus,” Komileva added.

With no sign of further action by the Fed, AxiCorp’s market analyst Milan Cutkovic said the spotlight would now be on Congress over a new stimulus package with further delays that could potentially affect markets.

“The focus is now shifting back to the US Congress, where Democrats and Republicans are still struggling to agree on a stimulus package. “Investors are becoming increasingly impatient with the lack of progress, and market sentiment could become sour if there is no agreement soon,” he said.

Goldman Sachs GS,
+ 1.35%
economist David Mericle noted that while Powell said more fiscal stimulus was expected from Congress, there were risks in both directions. Mericle added that a democratic sweep in the election would likely mean “significant additional stimulus”, while a failure in negotiations on a new stimulus proposal this month and a split government after the election would “increase the risk of a slower recovery.”

The markets

After a slight increase on Wednesday, Dow Jones Industrial Average DJIA,
+ 0.13%
was set to fall as the Dow futures YM00,
-0.92%
pointed 0.9% or 254 points lower before open. Nasdaq futures NQ00,
-1.92%
slipped 1% and S&P 500 futures ES00,
-1.30%
was 1.1% lower as traders reacted to the Fed’s cautious global economic outlook.

European equities also fell in early trading in the pan-European Stoxx 600 SXXP,
-0.77%
0.6% lower, the German DAX DAX,
-0.75%
0.6% lower and FTSE 100 UKX,
-0.46%
decreasing 0.8%. Rising coronavirus cases in countries across the continent also contributed to the negative mood.

The hum

Shares of Snowflake SNOW,
+ 111.60%
rose 111.6% in Wednesday’s session after the company produced the largest initial software offering recorded, leaving the company with a market value of approx. $ 70 billion.

The Bank of England is expected to keep interest rates amid conflicting signals of the UK’s economic recovery.

Database software company Oracle’s ORCL,
-0.83%
bid for Chinese-owned video-sharing app TikTok has raised concerns within the Trump administration that it still poses national security risks, according to a Bloomberg report late Wednesday.

Anglo-French biotech group Novacyt ALNOV,
+ 5.39%
went to profit in the first half as sales of COVID-19 tests triggered an increase in revenue.

European car sales fell 18% in August after a three-month improvement after lock-in, raising concerns about the recovery. Car manufacturers Renault RNO,
-1.37%
and Volkswagen VOW,
-1.65%
was among the sector’s sharpest declines on Thursday.

President Donald Trump said a COVID-19 vaccine could be rolled out by mid-October, and disputed previous comments from the Centers for Disease Control and Prevention Director Dr. Robert Redfield, who said a vaccine may not be available to the public until well into next year.

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