The Fed waiting game

December 13, 2016

Ranges were on the tight side during Monday as markets hold back ahead of the two-day Fed meeting in the US which starts today. This is the last major known risk event of the year, so once over, we’re likely to see volatility and volumes diminish into year end. As mentioned yesterday, it’s all about the projections (also known as ‘dot-plot’) of individual FOMC member forecast that are released at the same time. There is also the press conference by Fed Chair Yellen to be considered. Overall, the dollar has done its work ahead of the meeting and remains in a consolidative mood. We also saw US equities pull back a little yesterday, with a similar cautious tone having been seen in Asia.

Data in China had only limited impact, with retail sales rising 10.8% in November, after a 10% rise seen the previous month. Industrial production was a touch firmer than expected at 6.1%, with stocks in China barely changed. However, the relationship between Chinese stocks and the economy has always been weak at best. Sterling will be having a close eye inflation at 09:30 GMT, with headline inflation seen rising to 1.1%, from 0.9% previously. The PPI data, released at the same time, will show input prices rising further on the back of the fall in sterling. Overall inflation is seen moving higher fairly promptly during 2017. In theory, this should be a negative backdrop for a currency, especially given rates will remain low. But many are seeing sterling under-valued on a longer-term basis, which continues to provide support at the margins.

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