Financial market research and analysis

The trading week started with mere optimism. The Federal Reserve (Fed) and the Bank of Japan’s (BoJ) monetary policy verdicts due on Wednesday, are the major talking points across the globe.

The US dollar is giving back gains collected after US inflation accelerated at a faster than expected pace in August. Released on Friday, the acceleration in the US’ core CPI (ex-food and energy) to 2.3% on yearly basis, revived the Fed hawks before Wednesday’s decision.

The market assesses a 20% probability for the Fed to raise interest rates this week. This means that a clear majority is still not ready to absorb higher US rates, yet the accompanying statement will be important as it is expected to hint at the Fed’s intentions regarding the future of its monetary policy. The main question is whether or not the Fed could hike rates at least once before the end of this year.

The expectations for a September rate hike hint at a status quo on Wednesday, yet the odds for a December rate hike bounced to 55% from below 50% preceding the inflation data.

In Japan, the efficiency of the current monetary policy has become a major concern. The BoJ is trapped into the questionable effectiveness of its negative rate policy (NIRP), the tightening limits surrounding its asset purchases programme as well as its declining credibility.

Clearly, the ultra-extensive monetary policy has not been the right strategy to answer Japan’s deflationary economy. Moreover, an extended period of negative rates would perhaps not do any good to an economy where the saving-to-spending ratio is historically high, and where the aging population desperately watch their pension fund returns melting at a visible pace. Given the domestic dynamics, the fiscal dimension should be brought in before the BoJ runs out of ammunition.

FTSE gains on firmer oil

WTI gained (+1.84%) on news that OPEC may call for an extraordinary meeting, also including the non-OPEC Russia, should the informal September meeting hint at a potential output freeze. The clashes in Libya have also been supportive of oil prices at the start of this week.

The FTSE opened upbeat on the back of a softer sterling and firmer oil prices. All sectors opened in the green as energy and mining stocks lead gains.

Royal Dutch Shell (+1.47%), BP (+1.18%), Glencore (+2.32%), BHP Billiton (+2.22%)