Jerome Powell heads for his first interest rate increase as Federal Reserve Chairman this week with an unanswered question looming above others: could his optimism about the United States economy lead to more hikes than markets have prepared for?
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Meanwhile, equity traders continued to place downward pressure on shares of scandal-embroiled Facebook.
Here we go with day two of a very busy week on the political and economic front.
Other events to watch include early March Markit Purchasing Managers’ Index numbers for both the euro zone and USA – which will also be released on Thursday – for the monthly insight into the manufacturing conditions in the regions, as well as China’s National People’s Congress that will wrap up tomorrow.
The U.S. dollar was down 0.3% ahead of the Fed meeting, trading at 90.1 on the DXY index.
The yen rose 0.3% to ¥106.2 per dollar.
“So far, we have seen low-level (trade) skirmishes, which are not material enough to affect the world economy”.
Reasons cited by dealers include concerns about the USA budget and current account deficits, political chaos at the White House, better growth in competing countries, particularly Europe, and the risk of a US -led trade war.
The tech selloff is a serious setback to markets just as they recover from an early-February selloff, Milligan said, noting tech had been “the leading light of US and Asian equity markets for over a year”. Hong Kong’s Hang Seng index was marginally lower in late trade.
The decline was somewhat surprising given figures from Bank of America Merrill Lynch showed a record $43.3 billion of inflows into equities last week, outpacing bond flows for the first time since 2013.
“We expect Thursday’s OCR review to contain few surprises”.
Powell will want to put his mark on the Fed, Swonk says, and one way he might do it is to increase transparency by announcing that he’ll hold a news conference after every Fed meeting.
Federal Reserve officials will face an unusual predicament as they update their economic projections this week: Everything has changed but the data.
“Only a confident sounding outlook wouldn’t shake the dollar out of its ranges as there seems to be more structural headwinds at play, but if we see many voices leaning towards four rate hikes, that might be a game changer in the short term”, said Richard Falkenhall, senior FX strategist at SEB.
Those expectations had sent the dollar to nearly three-week highs on Tuesday, but it eased back a quarter percent against a basket of currencies on Wednesday, having lost almost half a percent this month.
The yield on US Treasury bonds rose 2.4 basis points to 2.848% on Friday, cutting the week’s fall to 4.6 basis points, the largest five-day drop since December 29 previous year (according to FactSet data). The median Fed official pegged it at 2.8 percent in December, suggesting the so-called neutral rate that neither stokes nor slows growth will be much lower in the future than it has been in the past. He said in his recent congressional testimony the Fed needs to strike a balance between two goals.
Large US companies have tried to persuade the US president not to impose the planned massive tariffs on goods imported from China, the world’s second largest economy. A sharp rise in wage growth reported in the government’s January jobs report triggered fears that higher labor costs would lead to higher inflation and, ultimately, to higher interest rates. CIBC expects sales to rise 1.6 per cent from December, lifted by a jump in auto sales and higher gasoline prices.
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The single currency was down 0.3 percent below the $1.23 line and hovering just above a three-week low of around $1.2260.
