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EURUSD hovers around 1.1800 - AM Briefing
29 Sep 2017
Trump tax reform lifts Wall Street - AM Briefing
28 Sep 2017
What is the Fed trying to tell us? - PM Bulletin
27 Sep 2017
Yellen struggles with inflation - AM Briefing
27 Sep 2017
Can cable’s rally continue? - PM Bulletin
26 Sep 2017
Investors jittery after North Korean threat - AM Briefing
26 Sep 2017
EURUSD slips again - PM bulletin
25 Sep 2017
Merkel scrambles to form coalition - AM Briefing
25 Sep 2017
Caution ahead of weekend - AM Briefing
22 Sep 2017
Fed Meeting Post-Mortem - Video Update
21 Sep 2017
Fed signals another rate hike - AM Briefing
21 Sep 2017
Trading subdued ahead of Fed meeting - Video Update
20 Sep 2017
Fed expected to reduce balance sheet - AM Briefing
20 Sep 2017
FOMC and balance sheet reduction - PM Bulletin
19 Sep 2017
Dow hits fresh record high - AM Briefing
19 Sep 2017
EURUSD continues to trend higher - PM Bulletin
18 Sep 2017
Global indices storm higher - AM Briefing
18 Sep 2017
Investors shrug off NK missile test - AM Briefing
15 Sep 2017
Sterling soars after BoE meeting - Video Update
14 Sep 2017
Bank of England meeting in focus - AM Briefing
14 Sep 2017
Look-ahead to the BoE monetary policy meeting - Video Update
13 Sep 2017
Sterling bounces as inflation picks up - PM Bulletin
12 Sep 2017
Wall Street rally lifts sentiment - AM Briefing
12 Sep 2017
Euro storms higher - AM Briefing
08 Sep 2017
ECB meeting in focus - AM Briefing
07 Sep 2017
EURUSD soars during Draghi’s press conference - Video Update
07 Sep 2017
ECB meeting, a look-ahead to Thursday - Video Update
06 Sep 2017
Wall Street wobbles, but closes off lows - AM Briefing
06 Sep 2017
WTI recovering as clean-up continues - PM bulletin
05 Sep 2017
Investors shrug off North Korean threat - AM Briefing
05 Sep 2017
North Korean nuclear test boosts gold - PM Bulletin
04 Sep 2017
North Korea rattles markets - AM Briefing
04 Sep 2017
High hopes for the latest US jobs release - AM Briefing
01 Sep 2017
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 Thursday 21 September 2017

Fed signals another rate hike - AM Briefing

 

 

Early moves

·         FOMC signals December hike

·         Dollar shoots higher

Last night the US Federal Reserve’s FOMC concluded its two-day monetary policy meeting. As expected, the US central bank left its key fed funds rate unchanged at 1.00-1.25% and said that balance sheet reduction would begin next month. However, what really caught traders on the hop were the FOMC’s forecasts for future rate changes. There’s been a significant shift since the last Summary of Economic Projections with the majority of the 16-member FOMC now expecting another 25 basis point rate hike before the year-end. Stocks in the banking/finance sector soared which helped to push the Dow and S&P500 higher. The dollar also shot higher with the Dollar Index adding over a cent in less than an hour. While it may be too early to call for a recovery in the greenback after nine months’ of decline, the EURUSD does appear to be topping out chart-wise. It’s just too early to say whether this is the precursor to a more substantial pull-back or nothing more than consolidation.

The news from the Fed sent gold into a tailspin. The precious metal slumped below $1,300 and is currently testing support around the $1,295 level. A break below here increases the likelihood of a pull-back to $1,280. But if the dollar really has turned course, then we could see gold fall back to this year’s lows around $1,200.

Stock Index Update

·         Trade quiet ahead of Fed announcement

·         FOMC forecasts another rate hike in 2017

Traders were in limbo for most of yesterday as they awaited the outcome of the Federal Reserve’s key two-day meeting. The European majors were mixed for most of the session but with an easier bias overall. Spain’s IBEX was the worst performer ending the day around 1% lower. Investors are becoming increasingly concerned as the Spanish government takes action to try to stop a referendum on Catalonian independence.

As expected, the Fed left its key fed funds rate unchanged at 1.00-1.25% and said that balance sheet reduction would begin next month. However, what really caught traders on the hop were the FOMC’s forecasts for future rate changes. However, the majority of the 16-member FOMC now expects another 25 basis point rate hike before the year-end. Stocks in the banking/finance sector soared which helped to push the Dow and S&P500 higher.

Commodities Update

·         Crude rally continues

·         Precious metals slump on hawkish “dot plot”

Crude oil managed to rally in early trade yesterday, continuing a move which began at the beginning of the month. Prices got an early boost following the latest US inventory data from the American Petroleum Institute (API) after Tuesday’s close. This showed that crude stockpiles grew less than expected while there was a bigger-than-anticipated drawdown in gasoline inventories. Then yesterday we got the official data from the US Department of Energy. This showed a bigger-than-expected build in crude inventories which led to a sharp pull-back in both WTI and Brent. Nevertheless, both contracts managed to stay in positive territory ahead of the Fed announcement.

The recent rally in crude followed an upgrade in demand growth estimates from both OPEC and the International Energy Agency. Yet traders seem wary of pushing prices much higher from current levels. This is because global inventories continue to run at record levels meaning that the market has been awash in crude for more than three years. This could change should forecasts prove accurate and demand growth accelerate.

Gold and silver rallied in early trade yesterday but gave back early gains as investors positioned themselves ahead of last night’s key Fed meeting. But both metals slumped following the release of the Fed’s “Dot Plot”. This showed a hawkish shift within the Fed with the majority of FOMC members now forecasting another 25 basis point rate hike before year-end.

Both precious metals have sold off sharply over the past fortnight as investors reduced their exposure to safe havens. This came despite further provocations from North Korea over the past few weeks. This included firing another missile over Japanese territory last week. Nevertheless, the likelihood of hostilities erupting has reduced sharply. This came after South Korea made it clear that they would prefer living next to their nuclear armed neighbour to the prospect of US military action.

It seems very unlikely that the US would engage North Korea without backing from the South. Just under two weeks ago gold traded at $1,357 to hit its highest intra-day level since August 2016. At the same time silver poked its nose above $18.20 to hit its best level since April this year. Both have sold off sharply ever since. There’s some support for gold around the $1,320 area. Below $17.75 there’s little in the way of support for silver until it approaches $17.20.

Forex Update

·         Fed signals further tightening

·         UK Retail Sales beat expectations

FX markets were relatively quiet ahead of yesterday’s key meeting of the US Federal Reserve. But there were some notable features of trade prior to the Fed releases. Firstly, the dollar came under selling pressure in a move which saw the EURUSD push back above 1.2000. This was despite Tuesday’s news that some members of the ECB want to delay any announcement concerning tapering its bond purchase programme to December. Previously, the central bank was expected to provide details at its next meeting on 26th October.

Secondly, sterling rallied following the release of some strong UK economic data. Retail Sales rose 1.0% in August, miles above the +0.2% expected and comfortably higher above the upwardly-revised +0.6% in July. Yet again, the UK data surprised to the upside, confounding the dire prognostications from the Treasury, Bank of England and others in the aftermath of last summer’s Brexit vote.

But the main move came later in the day following the release of the Fed’s statement, Summary of Economic Projections and Janet Yellen’s press conference. The key factor in all of this was raised expectations of another Fed rate hike before the year-end. This took markets by surprise and led to a sharp rally in the dollar. The big question now is whether this marks an end to this year’s dollar sell-off, or is simply position squaring and consolidation.

Upcoming events

Today’s significant events and economic data releases include UK Public Sector Net Borrowing, High Street Lending and the ECB Economic Bulletin. From the US we have Weekly Jobless Claims and the Philly Fed Manufacturing Index.

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Posted by David Morrison

Category: AM Bulletin


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