Initial Jobless Claims increased, tapering postponed?
Wednesday we finally had the event of the week, the FED meeting, and their announcement. And continuing of FED announcement, Thursday we had employment numbers that missed the market expectation.
FED held the interest rates at 0 - 0.25%, and now we have 9 Hawkish members that voting for interest rates hike in 2022. At the same time, FOMC members increased their inflation expectations. By 2021, FED is expecting to see PCE inflation and core PCE inflation at 4.2% (previously 3.45) and 3.7% (previously 3.0%) but also emphasized that this is mainly affected by short-term factors and will ease in 2022 and 2023. Regarding tapering the asset purchases, the statement indicated that the Federal Reserve will start decreasing the bond purchases in 2021, but did not give a specific timetable.
About their economic Outlook, Federal Reserve lowered this year's GDP to 5.9% (previously 7.0% in June). The main reason is that the increase in virus infections has delayed the progress of economic recovery. The committee members also raised their expectations for this year's unemployment rate to 4.8% (previously 4.5%). On the other hand, next year's estimates improved. GDP is expected to rise by 3.8% in 2022 (previously 3.3%) and 2.5% in 2023 (previously 2.4%). Not only that, but the unemployment rate is expected to gradually fall back from the high point, and record 3.8% and 3.5% in 2022 and 2023 respectively (in line with previous expectations).
In short, Federal Reserve is committed to using its full range of tools to support the economy, thereby promoting its maximum employment and price stability goals. So any changes in the monetary policies and the pace of bond purchases depend on Inflation numbers and employment data.
And now we can analyze better what happened in the market and why today we saw such an amazing recovery. Today we had two very important data. Initial Jobless Claims and PMI numbers. Both data missed the expectations and for the second week in a row, we can see the requests to claim unemployment benefits increasing, while economic terms are falling with Manufacturing PMI to 60.5 and service PMI to 54.4. This weakness means that we will not have the tapering anytime soon, so supports will be for a bit longer time and stock markets use the advantage of that.
From the technical point of view, in the H4 chart, we can see RSI at 72, increasing OBV trend line, while price also returned above main MA lines, technical indicators currently supporting the uptrend correction, however, the overall downtrend has not been violated yet.