The global markets continue to be in frenzy amid the US inflation growth, which could lead to an earlier than currently anticipated start of the process of raising interest rates. However, this problem is not the only one that increases the influence of the factor of uncertainty and volatility.
It should be noted that the latest events related to the publication of important economic data in the United States, namely the resolution of the issue of the next increase in the level of public debt, were pushed to the background of the re-election of the Fed chairman. J. Powell, who was elected during the presidency of D. Trump in 2017 to the post of head of the world's largest Central Bank, will either be reappointed to this position after his term expires or L. Brainard, who is on the Fed's Board of Governors, will replace him. With regard to the chances of both candidates, it is believed that Powell has a 74% chance of returning to the office, while Brainard has a 26% chance of being elected. The decision has not yet been made, there is time until February next year. J. Biden, the President of the United States, is still thinking about which candidate to approve, which is still a strong factor of uncertainty, and here's the reason.
It can be recalled that after the results of the last meeting, the Fed decided to start cutting stimulus measures by $ 15 billion per month until the middle of next year. Investors in the wake of this fact, as well as a strong increase in inflation in October to 6.2%, would like to see a familiar person in the form of the Central Bank's head – Powell, who is quite predictable in his actions. As for Brainard's appointment, her position on the prospects of monetary policy is unclear. Despite the fact that she is considered a more softly-minded leader in monetary policy, it is unclear how she will respond to the existing difficult economic situation, the actual stagflation in the economy. In turn, this increases the uncertainty factor, which can lead to high volatility in financial markets with negative consequences.
Several market participants believe that there is a risk that Brainard may be noticeably tougher in assessing the prospects for monetary policy, which may lead to an earlier increase in interest rates, which in turn may be a shock to the markets. In any case, its arrival may change aspects of banking regulation, lending and serve as a risk for changing attitudes towards cryptocurrencies and the overall microclimate of the Central Bank.
Today, it seems that the markets are gradually beginning to calm down, which may result in local growth of stock indices and a weakening of the US dollar. From these statistics, attention should be paid to the publication of figures on the number of open vacancies from JOLTS, consumer expectations, and sentiment indices from the University of Michigan. The growth of these indicators may lead to the restoration of positive sentiment in the markets after recent sales.
Forecast of the day:
The EUR/USD pair may make an upward pullback to the level of 1.1515 on the wave of demand for risky assets.
The GBP/USD pair may also recover to the level of 1.3430.