Expectations of Fed Rate Hike Boost the Dollar

Market Reviews

US dollar strengthens in anticipation of the FOMC rate hike. The US central bank is expected to increase interest rate by 25 bps to 2.00-2.25%. Japanese yen and Canadian dollar are trading as the second strongest ones. Swiss franc, euro and the British pound are trading as the weakest ones.

Global stocks were mixed today. FTSE dropped by 0.02%, DAX fell by 0.18% and CAC gained 0.34%. Earlier today, Nikkei increased by 0.39%, Singapore Strait Times gained 0.09%, Hong Kong HSI rose by 1.15%. China Shanghai SSE grew by 0.92% to 2806.81. Germany 10 year bund yield is down slightly by -0.008 at 0.539 but stays very firm above 0.5 handle.

As Fed is widely expected to lift federal funds rate by 25 bps without a doubt, the major focuses will be on the new economic projections. Also, Federal Reserve Chairman Jerome Powell in his speech may belittle the significance of some of the downside risks that markets have been harassing lately.

Chinese government will cut import tariffs for some products starting November 1. The tariff list contains 1585 products, including machinery, paper, textiles and construction materials. Total tariff level of China will be reduced from 9.8% in 2017 to 7.5%. The reduction should reduce tax burden on enterprises and consumers by nearly CNY 60B.

Average rate for electromechanical equipment will be lowered from 12.2% to 8.8%. Average tax rate for textiles, building materials will be cut from 11.5% to 8.4%. Average tax rate for some resource products and primary processed products such as paper products will but reduced from 6.6% to 5.4%.

Peter Praet (ECB Chief Economist) stated today, that risks about economic growth were growing. He also reiterated the central bank’s base scenario, “where inflation is going to converge towards 2 percent, is conditional on very easy financial conditions in general.”