The US stock market closed lower on Tuesday, and the market is pointing to further losses.
The Dow Jones Index trades at 30,500, but the collapse of a two-day bounce is an ominous sign in a bear market.
The markets are concerned about the Federal Reserve’s decision on Wednesday. In a world where the common theme in monetary policy is tightening, the Fed has not been holding back.
According to Capital Economics, “a chunky rate hike is now largely priced into markets, but we think it could still keep a lid on prices.”
The backdrop of the Federal Reserve’s action is one of energy crises and slowing growth prospects. This week we are looking at a test of the 29,650-support level.
The big story this week is that the Federal Reserve is potentially going for a 1% rate hike. If they go for 0.75% or add some dovish comments, then the market will be supported.
ING bank said
“Normally, loose fiscal and tight monetary policy would be good for the pound. However, it seems that foreign investors are concerned as to how government support will be financed—with the fear that this will largely come through an additional supply of UK Gilts.”
“A difficult external environment and concerns as to how a government spending spree will be financed leave sterling vulnerable.”
“Cable can easily sink back to 1.135 and should remain offered this month, while the former resistance level of 0.872 should now prove support to EUR/GBP as it edges up to 0.88.”
“While some of this expectation will already be priced in by the markets, it is also likely to generate uncertainty – which markets loathe – and this, of course, can create mass anxiety amongst investors. Of course, investors should avoid complacency, but similarly, they should avoid panicking and responding to the market reaction driven by imperfect Fed policy tools,” analyst Green said.
