Dubai: After cutting interest rates twice this year already, investors will be turning their gaze to the US Federal Reserve to see if the central bank makes the third cut of 2019.
The probability of yet another rate cut is now over 90 per cent, and there is little doubt by investors that rates will be slashed when the board of the Fed concludes a two-day meeting this Wednesday. This would be the third rate cut of this year, and the third cut in over 10 years.
And while a cut is already priced into markets, analysts say it will be details of the Fed meeting rather than the outcome that will be closely watched. This includes the number of board members who vote against a cut, the Fed’s language on interest rate outlook, and the Fed’s comments on its balance sheet.
“If the Fed doesn’t send any signal and leaves the previous statement unchanged, the market will likely price in that the odds of another cut are a lot higher than previously expected, and this should cause a rise in stocks and bond prices,” said Charles-Henry Monchau, managing director for investment management at Al Mal Capital.
The last statement from the Fed said it will “act as appropriate” with regards to interest rates, stopping short of pointing to one direction or the other.
“However, if the central bank sends a signal for further rate cuts, this would be moderately hawkish … and might trigger a small correction in equity markets,” Monchau said.
For now, investors are not pricing in a fourth rate cut in December, and expect the next one in March 2020.
Come Wednesday night, the UAE’s central bank is expected to follow suit with regards to any changes in interest rate policy made by the Fed, meaning liquidity may ease in the country amid slower credit growth.
In currency markets, investors will also be eyeing the UK as the earlier-set deadline for Brexit of October 31 approaches. As uncertainty continues over the prime minister’s and Parliament’s next move, analysts say all options are now on the table, including a hard Brexit, which would hurt the sterling further.