Just over a week ago, an unexpectedly hawkish Janet Yellen caught investors by surprise when she reiterated her comments that waiting too long to raise rates would be unwise, though she also acknowledged that the path around fiscal policy remained unclear.

What did last night's Fed minutes tell us that we didn’t already know? The answer is not much.

Just over a week ago an unexpectedly hawkish Janet Yellen caught investors by surprise when she reiterated her comments that waiting too long to raise rates would be unwise, though she also acknowledged that the path around fiscal policy remained unclear.

Nonetheless at the time bond yields inched back up, the US dollar rallied and the probability of a March rate hike jumped from 32% to 45% as the Fed chief delivered a fairly upbeat economic message to US lawmakers.

It would appear that while investors had priced out the prospect of a move on rates in March the Fed, not unreasonably wanted to keep the markets guessing, and none of the recent comments by Fed policymakers have suggested that still isn’t the case.

It was always likely that the Fed would want to keep its policy options open, fiscal policy uncertainties notwithstanding, which is why last night’s minutes from the January Fed meeting were unlikely to add anything new to what we already knew, that a rate hike was coming “fairly soon”.

Unsurprisingly that turned out to be precisely what we got and the probability of a March rate hike is back at 32% again as the uncertainties surrounding fiscal policy serve to keep the markets guessing.

When US President Donald Trump announced, almost two weeks ago now that we could look forward to something “phenomenal” on tax reform in the coming weeks, investors have been looking in vain for indications as to when he intends to deliver on that promise.

It could well be that when he made this promise that he had a date in mind, given that he is due to address a joint session of Congress on 28 February. There would be no better time to flesh out the detail, with the eyes of the markets and the world on him, and with US markets continuing to push to new record highs on an almost daily basis.

In Europe, equity market performance has been much more mixed with the DAX closing back near the 12,000 level for the first time since April 2015, while the other markets in Europe have struggled as French political risk has pushed investors into German assets.

The FTSE 100 also had a decent day yesterday, helped by a strong performance from the banking sector, in the wake of a strong performance from Lloyds Banking Group yesterday, though today we’re looking for a lower open as a result of a number of companies going ex-dividend including Rio Tinto, Easyet and GlaxoSmithKilne. The story on banks continues today with the latest full-year numbers from Barclays

At its last trading update in October there was a decent performance from its fixed income business in Q3 as a result of post Brexit volatility returning £1.4bn, which helped boost its international operations.

Since then we’ve seen further volatility which should augur well for Q4 and the full year numbers, if the continued improvement in US banks profitability is any guide, this is somewhere we could well see further gains.

The pound has also seen bit of a haven bid, particularly against the euro in recent days, hitting a two month high in the process, with the resilience of the UK economy helping in that regard after an upward revision in the latest Q4 GDP revision to 0.7%, helped in part by a big jump in exports.

The biggest concern going forward is a slowdown on the part of the UK consumer after a strong second half of 2016. This has seen a bit of a slowdown in the last two months and today’s CBI retail sales for February could reinforce that narrative at a time when prices are starting to squeeze incomes. The January numbers saw a big slide from 35 to -8, and today’s numbers are expected to see a modest rebound to 4.

EURUSD – the euro slipped briefly below the 1.0520 area before rebounding from 1.0494, suggesting the possibility of a bear trap. The bias still remains for a move lower to the lows this year near 1.0340. We need to recover back through the 1.0680 area to retarget the highs at 1.0800.

GBPUSD – the pound has continued to hold above the 50 day MA at 1.2400. The lack of rebound is a concern which could see it break lower towards 1.2250. A move above the recent high at 1.2580 retargets the 1.2700 area.

EURGBP – the break of the 200 day MA at 0.8465 has seen a rebound from the 0.8400 area, which could delay a move towards the December lows at 0.8300, but won’t necessarily prevent it. We could see a rebound back towards the 0.8520 area first, and even 0.8570.

USDJPY – currently mid-range between the recent peaks just below the 115.00 level and the range lows at 111.60 in the short term. We need a break either side to determine the next move.


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