Dubai: The week ahead will be one of the busiest week of the year in terms of business data, but the will-they-or-won’t-they drama ahead of the US Federal Reserve meeting on Wednesday is likely to have the biggest impact on equities.
Currently, traders are pricing in an 81 per cent chance of a cut of 25 basis points, with at least one more rate cut before year-end.
Among the other data releases and events to watch out for, there is the US payrolls data later in the week, along with high-level trade talks with China.
“Traders have continually been re-adjusting the probability for a 50 basis point rate cut at this meeting in response to mixed-bag US data and Fed’s conflicting commentary. Overall, we don’t think the current economic conditions in the US warrant a 0.50 per cent rate cut at this meeting. However, the Fed will want to avoid making the dollar even stronger or Trump angrier by not moving at all. So, a 0.25 per cent cut is almost inventible,” Fawad Razaqzada, Technical Analyst FOREX.com said.
If the Fed cut its key rates by 25 basis points on Wednesday, it would be touted as the first cut in nearly a decade.
“We expect the Fed to deliver a 25 basis points rate cut, but we don’t anticipate more rate cuts post this FOMC, as US data points have been either in line with expectations or slightly above expectations. Markets could be disappointed with the accompanying statement as the Fed may not be ultra dovish,” Phannendar Bhavraju, chief investment officer at Arrow Capital DIFC said.
Bank of Japan and Brazil’s central bank also have their meetings later in the week.
“It depends on the outlook for future rate changes. If the Fed cuts rates by 25 basis points but strongly hints at the prospects of further cuts in the upcoming months then this should be bearish for the dollar, although the greenback may initially spike higher given the somewhat elevated expectations for a 0.50 per cent cut — clearly some dollar bears will be disappointed in this [likely] event. However, if the forward guidance is not as dovish then the dollar could very well stage a sizable rally,” Razaqzada said.
The dollar index traded near its 52-weeks high on Friday.
The dollar index hit a high of 98.09, not far away from its 52-week high of 98.37. The dollar index has gained 1.8 per cent in the year so far.
The US equities hit a record high on Friday. On Friday, the S&P 500 rose 0.7 per cent to end at 3,025.86, notching its 13th record of the year.
The tech-heavy Nasdaq Composite gained 1.1 per cent, to 8330.21, its 10th record of 2019. The Dow Jones Industrial Average closed 0.19 per cent higher at 27,192.45.
“US equities have run up on the back of aggressive rate cut expectations, we don’t expect more than 2-3 per cent upside from the present levels and equities could see a decent correction in the coming weeks, thus presenting good buying opportunities,” Bhavraju said.