Axi | Mar 22, 2018 09:03
Originally published by AxiTrader h2 Market Summary (FOMC day March 22 – 7.30 am AEDT)/h2
The Fed has delivered an almost perfectly pitched statement and outlook this morning to accompany its decision to nudge rates another 0.25% into the 1.5%-1.75% range. They highlighted the “stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation” and the dot plot was just one participant away from reflecting 3 more hikes this year.
The forex market reaction has been to sell the US dollar because the read has been that the Fed was not as hawkish as expected. But it’s a very fine run thing and likely reflects positioning more than an actually objective read of the statement, accompanying projections, or even Chair Powell’s press conference.
But clearly the short term market was more skewed for a very hawkish Fed than I certainly appreciated. Just look at the move in the Australian dollar, which has climbed to 0.7770, up half a cent from just before the Fed announcement, for a rise of 1.1% since 8am yesterday. The euro is up 0.75% at 1.2332, the pound has rallied to 1.4135 for a 1% rise, while the yen has strengthened half a percent to 106.00. The kiwi and Canadian dollar are also higher – up 0.74% and 1.3% respectively.
Stocks have got a different message to forex traders however with the post announcement rally fading into the red. The S&P 500 finished down 0.18%, the Dow lost 0.18% and the Nasdaq dropped 0.47%. Bonds are a little lower however with the 2 year note at 2.30% and the 10 year note at 2.87%. These had been higher earlier but have drifted lower with stocks.
So it is a maelstrom of moves and reactions to the Fed. My take is that Powell has been a great pick, he was in his element and was the very model of what a central banker should be. He just oozed gravitas. Moving beyond appearances though it seems a Powell Fed believes the US economy is strengthening, believes to raise rates too slowly would risk the economy, dissed the dot plot saying, “2.7% might be the median but it doesn't say what we think is possible”, didn’t appear worried about the threat of tariffs, and was honest enough to say who knows about three years out.
This is a Fed that is likely to raise rates 4 times this year on current settings.
On commodity markets oil’s break out continued amid technical impetus and more geopolitical and market balance concerns. Indeed the EIA crude inventory data showed a draw of 2.6 million barrels not the 2.6 million build forecast. WTI is up another 3.08% to 65.50 and Brent has climbed 3.49% to $69.77 as a result.
Gold is also higher this morning fairly roaring at $1333 – it’s gained $13 since the Fed meeting. Copper is a little stronger as well up 1.43% to $3.08 a pound in what’s been an otherwise red day for base metals. Iron ore appears to have stabilised.
On the day it is employment in Australia which is the key release with the market forecasting 20,000 jobs and an unemployment rate of 5.5% in February. Globally it flash PMI day where we get a sneak peek at the actual numbers to be released early in April. German IFo is also out along with British retail sales.
And of course the BoE will be up at 11pm tonight.
h2 Here's What I Picked Up (with a little more detail and a few charts)/h2 h2 International/h2
Have a great day's trading.
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