(21 FEBRUARY 2019)DAILY MARKET BRIEF 1:Dovish Fed boosts equities
Minutes of the US Federal Reserve Bank’s January meeting bumped equities across the globe slightly higher. On Thursday morning, futures on the S&P 500 rose to the highest level since 3 December, while European futures were also wearing green. The Eurostoxx 50 was up 0.25%, the German DAX 0.30% and the SMI 0.25%. Only the FTSE lost ground, down 0.40% amid Brexit uncertainties.
The Fed is worried about a slowing economy, not only in China but in general, and that too much tightening could derail the current dynamic. The Fed is leaving the door open for a further interest increase this year. The surprise was its much more dovish stance regarding the balance sheet reduction. The Fed is now considering backing off before the end of the year, or at least to stop reducing before the end of the year. Investors knew the balance sheet would not return to pre-crisis levels, but they were expecting it to become much smaller than USD 3 trillion. Fine, but with already low interest rates and a gigantic balance sheet, what tricks the Fed use in a crisis?
