On A landmark day on Thursday, Federal Reserve Chairman Colin Powell announced a major policy change, sparking riots in markets around the world. Treasury yields soared, the dollar recovered and gold plunged. In the current session, the market is focused on the U.S. PCE data performance. It is worth mentioning that the situation in the South China Sea presents an atmosphere of tension, and we should be alert to any further news about the situation between China and the US. Investors also focused on Mr Trump’s nominating speech.
Powell announces major policy changes market shock
Federal Reserve Chairman Colin Powell on Thursday set markets off with a much-anticipated speech announcing major policy changes at the central bank’s annual meeting in Jackson Hole.
Mr Powell said the Fed now had a 2 per cent inflation target and wanted inflation to grow by an “average” 2 per cent over time, using a “flexible form of average inflation targeting” that would allow inflation to rise “moderately” above 2 per cent to offset periods of weakness. That means the Fed is allowing inflation to overshoot, meaning it expects to keep interest rates low for a long time to come.
The fed said the changes also acknowledged “increased downside risks to employment and inflation” and pledged to use the central bank’s “comprehensive tools” to achieve price stability and strong Labour markets.
Mr Powell believes the new statement reflects the Fed’s view that a “strong job market” need not lead to unacceptable levels of inflation. The Fed’s new strategy is a “flexible form of average inflation targeting”. The Fed will be “highly focused” on promoting a strong job market.
The US Treasury yield curve steepened to its steepest level in two months following Mr Powell’s announcement that he would take a looser stance on inflation.
The Fed will allow inflation to overshoot, leading to a sharp sell-off in long-term TREASURIES that are more vulnerable to rising inflation. Expectations of a change in the Fed’s inflation target also add to the trend.
“When the Fed seems to be fighting inflation, that’s not good for the bond market, particularly long-term bonds,” said Russ Certo, managing director of interest rates at Brean Capital. Powell’s comments “are so explicit about a willingness to stimulate or embrace inflation. All of this implies a steepening of the yield curve.”
As the Fed adjusted its inflation target as expected, the dollar initially weakened and then rose. The DOLLAR index.DXY briefly tumbled to 92.42 before recovering quickly to around 93.33 before finally closing above the 93 mark, where the U.S. index was trading in Asia on Friday and remained around that level.
“What’s going to happen is when all the other central Banks start withdrawing stimulus and start showing signs of tightening, the Fed is going to lag behind,” said Edward Moya, senior market analyst at OANDA in New York.
“You see spreads that are not good for the dollar. It just provides a longer term bearish outlook for the dollar, “Moya said.
Gold was even more volatile, plunging after a short run to $1976 and falling as low as $1909 as the Federal Reserve made no further commitment to buy assets and the dollar rebounded. During Friday’s Asian session, gold hovered around $1,935.
Cailin Birch, global Economist at The Economist Intelligence Unit, said: “We expect gold prices to remain strongly supported as Powell’s comments clearly reflect The fact that recovery from The new crown crisis will be long and gradual, and requires sufficient central bank support to avoid backsliding.”
Fitch recently raised its 2020 gold price forecast to $1,850 an ounce. Gold is expected to start stabilising in 2021, with an average price of $1,850 an ounce.
Tensions in the South China Sea are high!
In addition to Powell’s remarks, markets continued to focus on the situation between the US and China at a time of escalating tensions in the South China Sea.
On August 25th China protested against the intrusion of an American spy plane into a restricted military area. China fired four medium-range missiles near the Xisha Islands in the South China Sea on Sunday, prompting the US to impose sanctions on 24 Chinese companies involved in the south China Sea. The US military also spoke out forcefully. On July 27, China protested against the intrusion of a US warship into its territorial waters in the Xisha Islands.
The United States on Wednesday announced sanctions against 24 Chinese companies involved in building islands in the South China Sea, raising speculation about whether to pave the way for military action. U.S. Defense Secretary Robert Esper said Thursday that “no land will be given away” in the Indo-Pacific region. As for the PEOPLE’s Liberation Army, which test-fired a number of ballistic missiles into the South China Sea on Wednesday, including the DF-21D, known as an aircraft carrier killer, the Ministry of National Defense stressed on Thursday that China would neither play along with the US nor let the US hu come. The risk of military conflict in the South China Sea is rising.
It is worth noting that America’s defence secretary, ace pearl eagle flavour in recently, after the Wall Street journal on Monday, the Chinese communist party and the people’s liberation army slammed system, and refers to the United States department of defense has been ready to all areas on the face after China, on Thursday denounced China did not fulfill commitment to international law, rules and norms, trying to global expansion force, more a: doing my best, it seems, is expanded to southeast Asia, especially in the influence of the south China sea, so the United States must strengthen in the indo-pacific region network of Allies and partners in response to China’s military and economic threat.
Some analysts have pointed out that the conflict between China and the United States in the South China Sea is difficult to resolve. The two sides have been continuously fleetingly fleetingly fleetingly fleetingly fleetingly showing their muscles.
The market is also focused on Donald Trump, who will officially accept the Republican party’s presidential nomination on Thursday and deliver his acceptance speech at the National Convention.
“Land of Greatness” will be the theme of the fourth day of the Republican National Convention in the United States, honoring the Greatness of America’s history. And how Trump will restore that greatness, and how he will continue to fight for it in his second term.
Mr. Trump plans to formally accept the Republican nomination and deliver the keynote address on the South Lawn of the White House. According to US media, Trump’s speech was long, outlining his priorities for his second term administration, including a platform for action on Issues such as China, immigration and the rule of law, and sending a message of hope and optimism to the Republican Party and the us as a whole.