Incisive market commentary from David Morrison

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Central banks and US payrolls in focus - Weekly Bulletin
31 Oct 2016
Revised Trading Hours - UK British Summer Time (BST) ends, 30th October 2016
28 Oct 2016
US GDP in focus - AM Bulletin
28 Oct 2016
US stock indices still range-bound
27 Oct 2016
Equities drift on mixed earnings
27 Oct 2016
Earnings season, oil and the US dollar - Video Update
26 Oct 2016
Apple disappoints - AM Bulletin
26 Oct 2016
Silver range-bound - PM Bulletin
25 Oct 2016
Equities up on deals and earnings - AM Bulletin
25 Oct 2016
Spread betting charges – overnight financing - Trading Guide
24 Oct 2016
USD rally continues - Weekly Bulletin
24 Oct 2016
Deutsche Bank trades at pre-DOJ fine levels : AM Bulletin
21 Oct 2016
ECB Decision in less than 400 words - PM Bulletin
20 Oct 2016
Oil’s move to a 15-month high supports global markets - AM Bulletin
20 Oct 2016
Intel buck earnings trend as the Fed takes centre stage again - PM Bulletin
19 Oct 2016
WTI eyes resistance around June highs - PM Bulletin
18 Oct 2016
US/UK inflation data in focus - AM Bulletin
18 Oct 2016
How to know what to spread bet on : Trading Guides
17 Oct 2016
Dollar up on December rate hike speculation - Weekly Bulletin
16 Oct 2016
Oil sparks recovery on Wall Street - AM Bulletin
14 Oct 2016
FOMC minutes - hawkish or dovish? - PM Bulletin
13 Oct 2016
Weak Chinese trade number hits miners - AM Bulletin
13 Oct 2016
US indices range-bound ahead of election - Video Update
12 Oct 2016
FOMC minutes in focus - AM Bulletin
12 Oct 2016
Sterling at fresh multi-year lows : PM Bulletin
11 Oct 2016
Brent crude hits 12-month high - AM Buleltin
11 Oct 2016
How Spread Betting Works : Trading Guides
10 Oct 2016
Another disappointing US payroll report - Weekly Bulletin
09 Oct 2016
Sterling “flash crash” and US Non-Farm Payrolls - AM Bulletin
07 Oct 2016
Non-Farm Payroll look-ahead - PM Bulletin
06 Oct 2016
AM Bulletin: Equities up on data releases and oil
06 Oct 2016
Video Update: OPEC’s production cut promise poses some questions
05 Oct 2016
AM Bulletin: Precious metals slump on USD rally
05 Oct 2016
PM Bulletin: Sterling lurches lower
04 Oct 2016
AM Bulletin: Firmer start for global equities
04 Oct 2016
Trading Guide: How to use Stop Losses in spread betting
03 Oct 2016
Weekly Bulletin: Important week for data releases
03 Oct 2016
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Last night the US Federal Reserve released the minutes of its Federal Open Market Committee (FOMC) meeting from September. That was when the FOMC voted to keep its key Fed Funds rate unchanged and trading within a band of 0.25-0.50% - as expected. Many analysts had already put their reputations on the line in stating that the Fed wouldn’t want to raise rates so close to the US Presidential Election. Nevertheless, that didn’t stop Fed Chair Janet Yellen using her speech at Jackson Hole at the end of August to insist that the case for a rate hike had “strengthened” over the past couple of months. Then her Vice-Chair Stanley Fischer stated that Dr Yellen’s comments were entitrely consistent with two rate hikes before the year-end.

But as the September meeting approached, there was a sudden back-pedalling, culminating in FOMC-voting member Lael Brainard effectively kiboshing expectations of monetary tightening. What was interesting was that three FOMC members - Esther George, Loretta Mester and Eric Rosengren dissented and voted for an immediate 25 basis point hike. So, last night’s release of the minutes from this meeting were of some interest.

The trouble is that there is some argument concerning whether the minutes were dovish or hawkish. In other words, did the minutes suggest that the Fed is preparing to hike in December or hold off yet again?

Some of the key points: several FOMC  members said that the decision to wait was a “close call” and several said that they saw a rate hike coming “relatively soon.” It was also noted that a “reasonable argument” could be made for a hike and that several participants were concerned that another delay “risked eroding its credibility, especially given that recent economic data had largely corroborated the Committee’s economic outlook.”

On the face of it this all sounded pretty hawkish and keeps live the prospect of a December rate hike. However, the market reaction suggested that investors viewed them as dovish as the dollar sold off and precious metals rallied. The major US indices ended little-changed and it’s difficult to work out if today’s sell-off is on the prospect of monetary tightening, nervousness ahead of the election or concerns over corporate earnings and China’s declining Trade Surplus.

The sad fact remains that the Fed is stuck in a loop. It has to convince investors that the US economy is strengthening and robust enough to handle tighter monetary policy. At the same time it has to come up with excuses to say that it is worth delaying for a little longer, in order to keep a bid under stocks. The Fed knows it has to push rates up from current levels to have ammunition to cut when the next recession hits. But it also knows that it risks hiking into economic weakness. This isn’t just a domestic issue. Fears over the fallout of the UK’s vote to leave the EU(see sterling), trouble within the European banking system (see Deutsche Bank) and a sharp slowdown in China (see yesterday’s slump in the Trade Surplus) are all major signals of problems to come. These could all be rolled out as excuses in December when the Fed chickens out from hiking once again. Unfortunately, this could also end up confirming the dissenters’ concerns over further damaging the Fed’s credibility. 

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Posted by David Morrison

Category: PM Bulletin

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