Markets around the world have been trading down slightly overnight and into this morning with traders reluctant to get caught out on a limb before today's Fed announcements.
Index futures in the US, plus the FTSE and Nikkei are all trading flat or marginally higher or lower while the Dax is down 0.3%. The US Dollar is down slightly enabling gold to bounce 0.4% and Silver to gain 1.2%.
Today has the potential to be a big day for trading around the world. The main event is the FOMC decision, statement and projections at 2:00 pm EST followed by Chair Yellen's press conference at 2:30 pm EST.
Having run out of meetings and excuses to stall with the US near full employment, the economy doing well, the election over and inflation on the rise. The Fed is pretty much guaranteed to raise interest rates by 0.25%. At this point the potential negative impact of a shock decision to do nothing would far outweigh any liquidity benefits (think the reaction to the ECB one and done QE cut times ten).
This time around the member projections, statement and press conference are likely to have a bigger impact than the decision itself. Before the US election the US Dollar was pricing in two interest rate hikes in 2017 but since the election, expectations that fiscal stimulus under a Trump Administration could boost inflation has pushed the US Dollar higher and expectations up to four interest rate increases. This is a big difference and I’m not convinced Fed Chair Yellen in her last full year would suddenly turn aggressively hawkish, I can see two but think four 2017 hikes is pushing it. The controversial dot plot of Fed funds expectations could have a particularly large impact if the majority of estimates point to less than four increases in 2017.
A less hawkish than expected outlook from the Fed could spark a significant correction in the US Dollar which has been looking overbought and exhausted for a while now. A US Dollar correction could ignite markets that have been depressed lately like gold, bonds, and JPY. CAD, EUR and GBP may also benefit from a US Dollar correction. Stocks may continue to rally but the Dow 20,000 effect could cause some volatility. I remain concerned that we could see an echo of the $30 to $50 and round trip back to $30 Silver staged back in early 2011.
A flurry of US economic reports are out or due this morning which so far have been overshadowed by the Fed. Disappointing retail sales have been offset by higher than expected producer prices which indicate growing inflation pressures. Industrial production is due a bit later on. UK employment and Eurozone industrial production were disappointing earlier this morning but have had limited impact on trading so far.
Energy trading may remain more active through the morning hours around around inventory reports. WTI and Brent are down 1.3% while gasoline is down 1.8%. Oil started to fall late Tuesday following a surprise 4.6 mmbbl increase in API inventories. The street is currently expecting a 1.2 mmbbl drawdown for crude in tomorrow’s DOE report and a 2.0 mmbbl increase for gasoline.
There have been no major corporate announcements this morning.
US retail sales 0.1% vs street 0.3% vs previous 0.8%
US retail ex auto 0.2% vs street 0.4% vs previous 0.8%
US producer prices 1.3% vs street 0.9%
US core PPI 1.6% vs street 1.3%
Canada Teranet house prices 11.9% vs previous 11.8%
UK jobless claims change 2K vs street 6K vs previous 9K
UK average weekly earnings 2.5% vs street 2.3%
UK unemployment rate 4.8% as expected
UK employment change (6K) vs street 50K
Eurozone industrial production   0.6% vs street 0.8% vs previous 1.2%
China new Yuan loans 794B vs street 720B
Japan Tankan large mfg Index 10 as expected vs previous 6
Japan industrial production (1.4%) vs previous (1.3%)
Australia consumer confidence 97.3 vs previous 101.3
Upcoming significant economic announcements include:
9:15 am EST US industrial production street (0.3%)
10:30 am EST US DOE crude oil inventories street (1.5 mmbbls)
10:30 am EST US DOE gasoline inventories street 2.0 mmbbls
2:00 pm EST US FOMC decision 0.25% increase to 0.75% expected
2:00 pm EST US FOMC statement and member projections
2:30 pm EST FOMC Yellen press conference
4:30 pm EST NZ Business PMI previous 55.2
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