The Fed’s statement is considered evenly balanced. The Fed set up markets for a rate hike in the April FOMC minutes. December contract have fallen -5pts and are now below +50% probability of a +25bp hike. The adjustment of this gap between market expectation and Fed determination could cause some distress on financial markets, while we believe that the USA dollar bull should continue.
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– This is very similar to what happened at April’s FOMC meeting, in which the bank removed a key phrase to provide a less-dovish statement, stoking a quick run of United States dollars strength only to see markets fade the move shortly after. With markets calming down after the Brexit vote, officials appear more confident they can raise interest rates at least once in 2016.
To date, positive corporate earnings and signs that central banks will step in to support economic growth have helped lift global equities to their biggest monthly gain since March.
This morning, Euro equity indices are trading mixed as the market continues to digest yesterday’s Fed policy decision, leaving rates unchanged as anticipated.
“Still, we remain constructive over the third quarter, seeing the uncertain macro backdrop as conducive to lower USA real interest rates, boosting non-speculative positions on Comex as well as ETF holdings”, he added. Given that the July meeting was an “off” meeting – in other words, a meeting where there is no press conference or forecasts were provided, the chance of a hike was low to begin with. With fundamentals remaining negative for the pound, sterling is expected to remain under pressure ahead of the BoE announcement.
Pending home sales month-over-month in June gained 0.2 percent, missing economic consensus of 1.9 percent. Gasoline inventories rose by +500k barrels, also well above the upper limit of the average range. The Fed had increased its benchmark interest rate by 0.25 of a basis point last December – its first rate hike in nearly a decade.
Expect U.S. data to take on slightly more importance now, particularly with stronger prints.
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Although the statement stopped well short of signalling any intentions to raise rates in the near-term, it went far in the direction of undermining concerns following the UK Brexit decision that many saw keeping the Fed on hold for the foreseeable future.
