Markets had a muted response to today’s FOMC decision and statement, which came in basically as expected. The statement focused on continued growth in the US economy and noted that even through the fall in oil prices has lowered inflation, it is still expected to trend toward 2% over time (ie just as rising oil driven inflation didn’t impact Fed decisions, the recent selloff likely won’t either).
Overall the Fed remains focused on domestic inflation and employment and only mentioned international developments almost as an afterthought. Most importantly, the last of the language related to “considerable time” before rate hikes has been removed this time around.
In reaction to the news USD has rallied while gold has been flat and the Dow has started to drop back a bit. This indicates that traders see no change to the potential for interest rate increases to start around mid-year.
Greece had a tough day today as its stock market fell by 12%, treasury yield jumped above 10% and its credit rating was placed under review on questions over how far the country’s new government would be willing to go to renegotiate the terms of its debt and to throw off the shackles of austerity.
Considering Syriza was elected in a vote of desperation after austerity policies already cratered the country’s economy Greece may not have much to lose at this point, and really, how much capital is left to flow out that hasn’t already been squirreled away over the last few years?
European indices were mixed with the FTSE
and DAX finishing higher, but the CAC, IBEX and MIB all trading lower. Traders continue to speculate on the impact the Greece election may have on political trends other struggling countries.
Crude oil continues to sell off today, knocked down by a combination of another big increase in US inventories and the afternoon USD rally. CAD and NOK have been following oil lower again with the loonie testing the $0.8000 (CADUSD) or $1.2500 (USDCAD) level.
NZD plunged after the RBNZ’s latest statement took more potshots at the Kiwi Dollar calling its level “unjustifiable” and “unsustained” and stating “we expect to see a further significant depreciation” which could be seen as another intervention threat. The central bank did note the positive impact of lower fuel prices on consumer and business purchasing power and indicated it expects to “keep the OCR on hold for some time” So governor Wheeler appears firmly neutral on interest rates and bearish on NZD.
In addition to the reaction to the RBNZ meeting, Asia Pacific markets may also be active on Japanese retail sales data with traders looking for any sign of whether last fall’s increase or lower energy prices has helped to increase consumer spending yet or if more stimulus may be needed. Questions over what political changes in Greece may mean for the Eurozone and another round of big corporate earnings may also drive trading action over the next 12-24 hours.
Facebook headlines companies reporting after US markets close tonight
Significant announcements released overnight include:
S&P put Greece on CreditWatch negative.
US interest rate 0.25% no change expected
NZ interest rate 3.50% no change expected
US crude oil inventories 8.8 mmbbls vs street 4.0 mmbbls
Upcoming significant announcements include:
8:45 am AEDT NZ trade balance street $75M
10:00 am AEDT Australia leading index previous (0.2%)
10:50 am AEDT Japan retail sales street 0.9%
7:00 am GMT UK Nationwide house prices street 6.6%
8:00 am GMT Spain retail sales street 2.5%
8:30 am GMT Sweden retail sales street 4.2%
8:55 am GMT Germany unemployment change street (10K)
8:55 am GMT Germany unemployment rate street 6.5%
1:00 pm GMT Germany consumer prices street (0.1%)
8:30 am EST US jobless claims street 300K
10:00 am EST US pending home sales street 10.8%
10:30 am EST US natural gas street (111 BCF)