Once again markets got it right

22 September, 2016

“We trust the economy, yet not enough to tighten monetary policy” this was the message sent by Chair Janet Yellen to markets on Wednesday to explain the motives for keeping rates on hold in September.

Although the monetary policy decision was viewed as dovish which sent equities higher across the board and the dollar lower, the Federal Reserve has never been seen as divided so far this year.

Three out of the ten voting members dissented against the decision, calling for an immediate rate hike, this made the call for a December rate increase much stronger. Although Yellen confirmed that a November meeting is a live one, her body language didn’t really reflect high confidence and neither markets did buy it with only 12% priced in for a move in November.

Key takeaways from the Fed’s decision:

Major changes in statement: “The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives.” A strong signal that a move will come by December.

Dots continue to fall: The “dot plot” used by Federal Reserve members to mark their expectations for the path of interest rates showed 25 basis points increase by end of year, but more interestingly projections were scaled down in 2017 and over the longer run, suggesting a new normal for interest rates. In 2017 expectations are now for two rate hikes instead of three, and to reach 2.9% on the longer run versus 3% in June’s projections.

Growth scaled down: Growth expectations were trimmed by 0.2% in 2016 to 1.8%. Remarkably, the 2% magical number is hard to reach on the longer run too, with medium forecast falling to 1.8% from 2%.

Equities rise, yields slump

Markets received a boost today with Asian and European equities following Wall Street higher after Nasdaq Composite closed at a record high. European bond markets also got a lift with yields dropping across the curve. Yields on German 10 year bonds fell back into negative territory, while UK bonds among the best performers with yields on 10, 15 and 30 years gilts falling more than 7 basis points.


Source link  
Powell gives green light to interest rate cut

The S&P 500 reached a new milestone high on Wednesday breaking above 3000 for the first time ever as Fed Chair Jerome Powell...

Powell primes markets for July Fed rate cut

Fed chair Jerome Powell's latest dovish comments have removed market doubts over a US interest rate cut in July. Such signals have translated into...

Euro barely blinks on election results

The Euro has opened the new trading week marginally higher against the Greenback following initial results from the Parliamentary elections in Europe...


More bad news for Sterling as EURGBP

Backlash - that would be the word used to sum up the investor reaction from the latest attempt by UK Prime Minister Theresa May to push forward her...

EURJPY sinks to flash crash levels

A wave of risk aversion engulfed global equity and foreign exchange markets on Thursday after Donald Trump accused China of breaking...

US corporate earnings to drive global stock markets

Asian stocks, excluding Japan, are mixed on Monday, even after US stocks posted new record highs following the United States GDP report released at...


Mixed US corporate earnings reaction

Asian equities fluctuated mostly into the red on Friday, following the trend seen in their US counterparts on Thursday. As the latest US corporate earnings...

Brexit stalemate deepens

The drama, confusion and sheer uncertainty over Brexit intensified yesterday evening, after British MPs rejected all eight options aimed at...

Brexit chaos deepens

The British Pound fell yesterday afternoon, after the House of Commons Speaker John Bercow essentially banned Theresa May's Brexit deal from getting a third vote.

  


Share it on:   or