Investing.com -- The Fed continues its efforts to unblock the financial system's plumbing, while a global day of action on climate change may produce some long-awaited fiscal stimulus from Germany. Here's what you need to know in financial markets on Friday, 20th September.
1. Fed to Fix the Plumbing?
The Federal Reserve will conduct another daily repo operation to ease ongoing tension in U.S. funding markets, as Wall Street frets increasingly loudly about a structural lack of liquidity.
New York Fed President John Williams is due to speak at 8:15 AM ET (1415 GMT), and may add more detail to Chairman Jerome Powell’s rather vague comments on Wednesday, when the central bank appeared still to be hoping that the problem would resolve itself in a couple of days.
The Wall Street Journal reported that Fed officials have already agreed to include on the agenda for next month’s policy meeting a discussion on expanding the Fed’s balance sheet again. It’s still unclear what shape this might take. Elsewhere, Eric Rosengren, one of the two dissenting hawks at this week's meeting, will also speak at 11:20 AM.
2. Climate Protests Sweep the World
A globally organized day of climate change protests is taking place ahead of the UN General Assembly next week, drawing large crowds in Australia, India, Thailand and elsewhere.
A number of companies and governments have scheduled policy initiatives to coincide with the protests, notably Amazon.com (NASDAQ:AMZN), which late Thursday unveiled plans to address its carbon footprint with an order for 100,000 electric delivery vehicles from the startup Rivian. The company had led a $700 million funding round for Rivian earlier this year.
Elsewhere, Germany’s federal government is expected to unveil a package of climate-related measures which some are styling as a disguised fiscal stimulus package. It may seem odd to be disguising a fiscal stimulus package, especially when the European Central Bank, OECD and IMF are all calling for one, but the party of Chancellor Angela Merkel still can’t bring itself to abandon a commitment to balanced budgets that has helped it win the last three elections.
3. Wall Street set to open higher
U.S. stock markets are set for another run at new record highs against a backdrop of rising hopes for benign outcomes in the U.S.-China trade dispute.
By 6 AM ET, Dow Futures were up 70 points or 0.3%, while S&P 500 Futures were also up 0.3% - less than 1% away from their all-time high. Nasdaq 100 Futures were up in line with the industrial bellwethers.
However, the bond market is still acting as a brake, with the yield curve flattening again due to the ongoing tightness in funding markets. The 10-Year Treasury yield is now only 2 basis points above that of the two-year, while both remain firmly below the 3-Month T-bill rate.
4. Mixed news on trade
Trade talks between mid-level officials from the U.S. and China are reportedly inching forward, aimed at preparing the ground for higher-level negotiations to resume early next month.
The U.S. administration said Chinese delegates will stay in the U.S. next week to visit farming areas, adding some incremental detail to positive mood music. Even so, the bottom line remains Commerce Secretary Wilbur Ross’s comments Thursday that “it’s more complicated than just buying a few more soybeans.”
5. Sterling surges on Brexit hopes
The British pound hit a two-month high against the dollar and a four-month high against the euro amid hopes that a disorderly Brexit can be avoided after outgoing European Commission President Jean-Claude Juncker told Sky News that a deal between the EU and the UK is possible.
However, here too, there remain some suspicions that hopes are running ahead of reality. The U.K. isn’t likely to present any legally binding proposals to break the deadlock until after the Conservative Party conference at the end of September.
The U.K. Supreme Court is expected to rule next week on the lawfulness of Prime Minister Boris Johnson’s decision to suspend parliament, a move that makes it harder for lawmakers to stop a No-Deal Brexit happening by default.