Vive la Revolution
2017 is a critical year for European politics not to mention the triggering of Article 50 and Trump.
Following the FOMC’s decision to raise the Fed funds target by 25bps to 0.25%-0.50%, Fed Chair Janet Yellen hosted a press conference with a Q&A session. For analysis of the move itself and the committee’s accompanying statement, please see our reaction note ‘The start of a gradual normalisation’.
Ms Yellen’s press conference added some colour to the statement but did not of course, alter the broad tone. She explained that had the FOMC not taken action soon, the improvements in inflation and the labour market which the committee is seeking, could have overshot, leading to more aggressive hikes in rates that could damage the economy. The Fed Chair did emphasise that the likely rise in rates would be gradual, that the Fed would monitor both actual inflation and inflation expectations carefully, and that it would take accommodative policy action were oil prices to stabilise and inflation did not increase. Overall her comments were balanced.
By the end of the press conference the dollar had strengthened modestly with EUR:USD at $1.0920 and cable at $1.50. Stocks took the news positively, with the S&P500 up by 1.6% on the day. 10y Treasury yields gyrated moderately but ended up more or less where they were ahead of the Fed decision at 2.30%. The mixed reaction is a sign that markets were unsure exactly what to make of proceedings this evening but also given the absence of major, unidirectional trends, that the Fed managed market expectations successfully.
There was nothing in the conference to change our view that the FOMC is likely to raise the funds target again by a further 25bps in March.
The world outside these four walls the big news is that EU leaders managed to come to an agreement in the early hours of the morning on how to deal with rescued migrants.
As luck would have it, when I hit shuffle on my Spotify this morning Mungo Jerry’s “In the Summertime” came on.
Is it a bird? Is it a plane? Well your second guess was close enough, it’s a 3rd runway for Heathrow.
On the last trading day of the week, the most notable development in markets was a sharp lift in crude oil prices, with WTI and Brent rising 4.6% and 3.4%, respectively.
The pound inched higher yesterday afternoon as news broke Theresa May had managed to avoid a Tory rebellion and avoid defeat in Parliament over her flagship Brexit bill.