Hints of hawkishness, but more lack of clarity

18 August, 2016

At first glance, Wednesday’s release of minutes from July’s FOMC meeting appeared slightly hawkish and relatively more optimistic about the prospects of a Fed rate hike this year. The minutes stated that some Fed members “anticipated that economic conditions would soon warrant taking another step in removing policy accommodation.” This revelation gave some inkling that the Fed may at least be more divided when it comes to members’ opinions on near-term rate hikes, and perhaps not as dovish-leaning as it has been portrayed to be in the past few months. Also on the hawkish side was the assertion that “near-term risks to the economic outlook have diminished.”

At the same time, however, the Fed’s characteristic abundance of caution and indecision showed clearly through, as it continued to reiterate its consistent stance on requiring more positive economic data going forward in order to act. Also reiterated were ongoing concerns from some members over inflation reaching the central bank’s 2% objective. Additionally, while improvements in the employment situation were acknowledged, some members expressed concerns about the future pace of job creation.

Therefore, while July’s FOMC meeting minutes contained some hints of hawkishness, the Fed’s continued lack of clarity and consensus were evident. As shown through immediate price reactions after the release of the minutes, the financial markets apparently interpreted this lack of direction as more dovish than expected, or at least not as hawkish as previously anticipated. Immediate market reactions manifested this dovish interpretation as a quick drop for the US dollar, a surge for gold, and a modest rebound for US equities.

These market moves were reinforced by the Fed Fund futures market, which showed an implied probability of a September rate hike at 24% immediately prior to the release of the minutes, followed by a plunge down to 12% in the immediate aftermath. That probability settled at around 18% shortly after. As for a rate hike by the end of the year, the implied probability dropped from 58% to 46%, settling later at around 50%.

Overall, though, as the markets continued to digest the reality that the FOMC minutes generally failed to clarify anything at all, both the US dollar and gold prices soon returned to the ranges at which they had been trading prior to the release.


Source link  
Markets turn focus towards Trump address to Congress

On the evening of Tuesday, February 28th, US President Trump is slated to give a major address to a joint session of Congress in lieu of the usual State of the Union address...

FOMC meeting minutes signal rate hike fairly soon – dollar unimpressed

The minutes from the most recent FOMC meeting three weeks ago – the first such meeting since Donald Trump’s presidential inauguration – were released on Wednesday afternoon...

Crude oil look set to resume bullish trend

Oil prices have been coiling for several weeks now with both contracts spending most of their time in a tight four dollar range...


US stocks could rise 6-7% further before potential crash

The US stock markets hit repeated new record highs last week. The positive sentiment has continued at the start of this week, with Asian and European markets drifting higher in an otherwise quiet day. US index futures point to further gains at the open later on...

Fed gives little indication of interest rate trajectory

The Federal Open Market Committee (FOMC) meeting has come and gone, and little has changed in the financial markets as a direct consequence. In unanimously deciding to keep interest rates unchanged, as widely expected...

Surging equities at risk ahead of earnings season

While earnings season has started on a very positive footing, however, banks and other financial companies were already expected to shine more than others due to rising interest rate expectations. As non-financial companies begin to report in the coming weeks...


Gold rebound heading for major resistance

For more than two weeks, the price of gold has been in a strong rebound from its late-December bottom around the $1125 level. This rebound follows a sustained drop in price that began from the July highs around $1375 and followed-through to the December lows...

Crude oil at higher plateau ahead of US inventory data

Crude oil prices have recently been lifted to year-to-date highs on a successful agreement to cut oil production and control supply among major OPEC and non-OPEC oil producers...

Gold rebounds off key level ahead of busy week

As we reported the possibility on Friday of last week, gold did indeed fall further lower this week. The rising dollar, yields and US equity prices all weighed on the appeal of the buck-denominated, noninterest-bearing and perceived safe-haven precious metal...

  


Share: