FOMC Preview: Cautious Yellen likely aiming to limit market impact of rate hike, but watch term premia

This post summarises my views on Wednesday’s much-anticipated US Federal Reserve meeting and potential 2017 trends.  The main points are: A 25bp Fed rate rate hike is fully priced by Fed Funds futures – given the improved US macro situation, Trump’s prospective (but uncertain) fiscal stimulus and strong signals from Fed Governors. So the market … More FOMC Preview: Cautious Yellen likely aiming to limit market impact of rate hike, but watch term premia

Yellen at Jackson Hole: Don’t Rock the Boat?

This post previews Janet Yellen’s 26 August Jackson Hole appearance, and the likely market implications.  The main points are: Recent FOMC mixed messages – Dudley’s/Fisher’s recent small hawkish drift versus Williamson’s/Bullard’s dovishness, reflecting the difficult issues confronting the Fed – underpin market confusion about Fed policy. Neverthless, markets remain sceptical about the likelihood of further US … More Yellen at Jackson Hole: Don’t Rock the Boat?

Brexit vote: where there is harmony may we bring discord (global concerns, UK recession, MPC rate cuts and further £ falls)

Margaret Thatcher’s 1979 election victory speech famously quoted St Francis of Assisi: “Where there is discord may we bring harmony, where there is error may we bring truth, where there is doubt may we bring faith, and where there is despair may we bring hope.” The decision to hold a UK EU membership referendum has … More Brexit vote: where there is harmony may we bring discord (global concerns, UK recession, MPC rate cuts and further £ falls)

Yellen to cautiously leave door open to June hike

Financial markets remain sceptical about further US rates rises heading into the tomorrow’s FOMC announcement. Less than one Fed rate increase in 2016 is fully priced, although the current 80% probability contrasts with only 10% a few weeks ago, whereas in December the Fed signalled four rate hikes in 2016. While a rate increase this … More Yellen to cautiously leave door open to June hike

Yellen will likely find it difficult to calm the sum of the markets fears: fixed income rally and JPY strength to extend

Fed Chair Yellen’s semi-annual testimony occurs at a time of considerable uncertainty about the global economy and substantial financial market volatility.  Oil price and equity price falls, particularly bank stocks, have dominated recent moves as global government bonds have fallen up to 60bp since end-2016 (with 10 year JGBs turning notably negative) and the dollar … More Yellen will likely find it difficult to calm the sum of the markets fears: fixed income rally and JPY strength to extend

Which banking sectors are vulnerable to the third wave of the financial crisis?

Concerns about the health of the global economy, originated by adverse economic news and policy fumbles in China but amplified by poor advanced economy data, have dominated financial markets in 2016. Sharp oil prices and equity falls have seen a fresh wave of central bank dovishness: see here for my ECB preview, a March Fed … More Which banking sectors are vulnerable to the third wave of the financial crisis?

Confident Fed equates to further (limited) Treasury sell-off and USD upside but watch for China and risk aversion

Last night’s Fed rate hike, with more balanced that expected accompanying material, seems to have given the green light to further limited (short-end US) yield rises and consequent USD dollar strength over the next few months. The latter will likely supported by gradual increased pricing of policy divergences – the Fed seems confident in anticipating … More Confident Fed equates to further (limited) Treasury sell-off and USD upside but watch for China and risk aversion

Caution in Threadneedle Street: weak pay growth supportive near-term but watching the Fed carefully

This morning’s surprisingly-weak UK pay data provide further ammunition to the dovish MPC members and the growing sense that the Committee really is in no rush to start raising interest rates and want to try and differentiate themselves from the Fed. That said, the recent UK pay growth slowdown has limited implications for inflation under … More Caution in Threadneedle Street: weak pay growth supportive near-term but watching the Fed carefully

Policy Divergence 2.0 increasingly priced but further limited FX action possible

This will be a key week for determining the strength of the ECB-Fed policy divergence theme (“divergence 2.0”) which has been increasingly occupying markets in recent weeks. While Thursday’s much-awaited ECB meeting tops the billing, it will be sandwiched by two high-profile appearances by Yellen (economic outlook speech on Wednesday, address to the congressional Joint … More Policy Divergence 2.0 increasingly priced but further limited FX action possible

ECB after the dovish Fed: QE extension virtually a done deal, expect further efforts to forestall EUR upsides

The Fed’s apparent dovishness, with markets pricing a delay in hiking until 2016 (see my accompanying post) on balance increases the likelihood that the ECB will on 3 December announce an expansion or (more likely) and extension of their QE programme (PSPP) beyond September 2016 end-point.  As I anticipated, Draghi opened the door to such … More ECB after the dovish Fed: QE extension virtually a done deal, expect further efforts to forestall EUR upsides

Dovish Fed highlights challenges facing central banks, volatility spike could only be delayed

The Fed’s dovish hold decision on Thursday set the cat amongst the pigeons in fixed income markets and sharply highlighted the challenges facing the world’s central banks given that: (i) the post-crisis EM debt boom encouraged by advanced economies’ QE policies – BIS report that USD-denominated loans to EMs have doubled to $3 trillion since … More Dovish Fed highlights challenges facing central banks, volatility spike could only be delayed

USD and Fed Rate Hikes: More Complicated Than Simply ‘buy the rumour, sell the fact’

Fed comments at Jackson Hole indicate that they are in wait and see mode about both domestic data and financial market/China stresses. But for now they’re apparently sticking to their 2015 liftoff plan and not ruling out a September rate hike. Specifically, Stanley Fischer argued “Given the apparent stability of inflation expectations, there is good … More USD and Fed Rate Hikes: More Complicated Than Simply ‘buy the rumour, sell the fact’

The Week A September Fed Hike Died? USD Bulls on the Run

This week’s dovish Fed minutes, disappointing US CPI, further oil price falls, growing Chinese uncertainties (Friday’s Chinese manufacturing PMI dropping to its lowest since March 2009) and sharp falls in global equity prices seem to have tipped the balance more decisively against a September 17th Fed rate hike. Market pricing has suggested around/less than a … More The Week A September Fed Hike Died? USD Bulls on the Run

US Q2 GDP: market’s glass half full view bodes well for USD strength

Today’s Q2 US GDP data were positively received by the market – EURUSD fell to around 1.09 in the hours after the release (although it subsequently bounced back a little). That initially sounds surprising given that the 2.3% qoq(a) outturn undershot market expectations of 2.5%. But there are positives in the details of the release, … More US Q2 GDP: market’s glass half full view bodes well for USD strength

FOMC likely to keep options open and acknowledge commodity weakness: limited USD downside possible

Tomorrow’s FOMC press release is being eagerly anticipated by market participants, keen to see whether FOMC will provide more definitive guidance about whether Fed liftoff will start in September (most economists’ favoured date) or December (more consistent with market pricing). Despite such hopes, I suspect that the FOMC press release will likely contain only relatively … More FOMC likely to keep options open and acknowledge commodity weakness: limited USD downside possible