The tone is not as dovish as perhaps many might expect and according to members of the Federal Reserve it is unlikely that there will be more cuts because the labor market remains strong.
After the news, we initially saw an appreciation of the dollar and a stock market crash, but then ended up recovering. Investors are waiting for tomorrow's derivative maturities, normally before maturities it is difficult for sales to be imposed clearly.
We will have to see how the market digests it from next week, since we also enter a period that is seasonally negative until mid-October.
Are more forward-looking interest rate movements anticipated by the Fed?
Looking forward, what is expected is that Donald Trump continues to pressure the Fed to have more rate drops, we saw yesterday how after Powell spoke, Trump responded by saying that he has no guts, no sense, no view.
Right now, futures on federal funds discount with a probability of 57.2% that on October 30 the rates will remain in the current range of 1.75-2%.
The fact that the Federal Reserve does not do what Trump says puts pressure on the US President. UU. to finally reach a trade agreement with China. We are in the pre-election year and Donald Trump knows very well that no US president. UU. He has won the elections with the country in recession, so this can accelerate Trump to make an agreement with China.
Both countries could reach an interim agreement to end the trade dispute in October. The Asian giant could commit to buying agricultural products and the government of Donald Trump (link to the last article by Aitor) would soften restrictions on Huawei and not impose tariffs, according to statements made by an adviser to the Chinese government. If this finally occurs, economic tensions could relax and, therefore, the need for greater interest rate adjustments to support the cycle would be eliminated.
Now, if no agreement is reached, the Fed will be forced to lower rates again, since economic data would weaken more than they are today and that is where Powell's speech part of yesterday where he said that if the risks of a recession increase, more cuts would be needed, blaming Trump directly or indirectly for economic weakening.
Banks: Bankia, Banco Sabadell and Caixa Bank the biggest beneficiaries today
The banking sector is being the main beneficiary after the Federal Reserve monetary policy meeting, although the 25 basis points were lowered and that negatively affects the profitability of the bank. The sector benefits from a less dovish tone than expected and a reduction in expectations of an additional cut in the US.
The profitability of the bonds has increased in recent days, which benefits the sector.
In this context, the benefits were generalized throughout the banking sector, as evidenced by the performance of Bankia (6.53%), Banco Sabadell (3.77%), Caixa Bank (3.69%), Bankinter (+ 2.79%), Banco Santander (+ 2.24%) and BBVA (+ 1.21%).
Despite the rebound of the sector of the last days, the sector is still in a downtrend, so I would wait for the sector index BCN banks to exceed 770 points before positioning myself.