Daily Market Update 16th June 2016
ECONOMIC DATA OF THE DAY
|11.00am||JPY||Bank of Japan Policy Rate||-0.10%||-0.10%|
|07.00pm||GBP||Bank of Englad Bank Rate||0.5%||0.5%|
|08.30pm||USD||USD - CPI MoM||0.3%||0.4%|
FOMC: The Fed decided to keep the rates unchanged at 0.25% (Lower Band) and 0.50% (Upper Band) as expected and signalled it still plans two rate increases in 2016 but lowered its economic growth forecasts for both 2016 and 2017 and lowered tightening projections in the medium term. Chairman Yellen said:
• It was fair to say that [“Brexit” concerns] was one of the factors that factored into today’s decision
• the pace of improvement in the labor market has slowed while growth in economic activity appears to have picked up (This is a complete reversal from their April statement)
• The [Fed] expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate
• No meeting is out in terms of a possible rate increase, but we really need to look at the data and I can’t pre-specify a timetable
• It’s not impossible that by July we would see data that we’re on a perfectly fine course
New forecasts show officials expect the federal-funds rate to sit at 0.875% by the end of this year. That forecast implies two rate increases by December, the same number of increases officials saw back in March. However, an increased number of officials now see just one increase, rather than two. In March, just one official forecast one rate increase in 2016 and seven saw three or more. Now, six officials forecast one increase in 2016, and only two see three or more
The FOMC also forecast the fed-funds rate at 1.625% by the end of 2017 and 2.375% at the end of 2018, lower than the quarterly projections officials released in March (see charts below). Back then the median estimate for rates in 2018 was 3%. In the longer run, the Fed expects its benchmark rate to reach 3%, lower than the 3.25% they saw in March. The Fed slightly reduced its estimate for 2016 economic growth to 2% from 2.2% in March and edged down its 2017 growth projection by 10bps to 2%. The Fed raised its inflation projection to 1.4% from 1.2%, but held to most of its other projections
It was an unanimous vote. Kansas City Fed President Esther George, who dissented in March and April in favour of a rate increase, voted with the majority
Fed median outlook from dot plot now shows cumulative hikes to 2.375% by 2018 from 3.00% previously
- Indicates 50bps in 2016 to 0.75-1.00% range, unchanged
- 75bps in 2017, from 100bps previously, to 1.625% vs 1.875%
- 75bps in 2018 vs 112.5bps previously, for a 2.375% year end 2018 rate from 3.00%
- US: Manufacturing output dropped 0.4% (Exp. -0.1%) driven by a 4.2% plunge in production of motor vehicles and parts. Mining production increased 0.2%, the sector’s first positive print since August 2015. Capacity utilisation slid 0.4% to 74.9% (Mkt est: 75.2%). U.S. producer prices rose for a second successive month during May. The producer-price index for final demand rose a seasonally adjusted 0.4% MoM (Exp: +0.3%) as energy prices surged 2.8% and trade service prices rose 1.2% increase in May. Core prices, ex-food, energy and trade, dipped 0.1% MoM (Exp: +0.1%) to partly reverse the 0.3% increase in April.Industrial Production declined more than expected at -0.4% MoM (Exp. -0.2%) largely due to a fall in output at auto factories and electric utilities
- New Zealand: GBP was higher than expected at 2.8% YoY (Exp. 2.6%) and 0.7% MoM (Exp. 0.5%). Oil/gas extraction and coal mining declined while farm production was flat as dairy offset a drop in sheep/beef output. Goods producing industries rose 1.5% as construction gained most since 1Q 2014, rising 4.9%
FOREIGN EXCHANGE (INDICATIVE RATES)
|Currency||Last||% Change||Overnight Range|
|DXY||94.61||-0.37%||94.36 – 94.979|
|EURUSD||1.1262||0.52%||1.1198 – 1.1298|
|USDJPY||105.86||-0.16%||105.44 - 106.4|
|AUDUSD||0.7419||0.46%||0.737 – 0.7456|
|GBPUSD||1.4199||0.37%||1.4139 - 1.4218|
Commodities (INDICATIVE RATES)
|Currency||Price USD||% Change||Overnight Range|
|Gold||1293.95||0.56%||1278.55 - 1296.92|
|Silver||17.56||0.78%||17.347 - 17.6135|
|Oil (BRENT)||48.97||0.08%||48.67 – 49.8|
|Oil (WTI)||47.46||0.94%||47.55 – 48.72|
(Source: Bloomberg and Saxo)
Gold: Gold continues to trade higher to 1290 approaching the psychological resistance of 1300. With BREXIT and German Bonds trading below 0%, it is likely that gold and silver will extend their gains.
Oil: Oil dips for a sixth day, on concerns that higher prices will encourage more output from new US production
USD sold off after the more dovish Yellen speech and DXY dropped 0.37% and pushed by the US yields lower. EUR is in a middle of wide range from the 200d MA at 1.1100 and the resistance band that we have seen all year at 1.14/1.15.
The better than expected New Zealand GDP this morning is pushing AUDNZD back lower and closer to the lows of the year at 1.0400 (currently trade at 1.0477).
USDJPY dropped as well in line with the rest and remains offered closer to 105
USD/Asia also traded lower NY with USDKRW being the best performer dropping to 1167 in the 1M from a high yesterday at 1180. USDCNH also managed to drop after strong bidding interest is now trading at 6.5910 with forward points stable due to a flush in liquidity in the short end
Fed keeps interest rates unchanged, signals fewer future hikes
The U.S. Federal Reserve kept interest rates unchanged on Wednesday and signaled it still planned to raise rates twice in 2016, though it said slower economic growth would crimp the pace of monetary policy tightening in future years.The central bank's decision to stick with its 2016 rate path, however, appeared shakier, with six of its 17 policymakers projecting just one increase this year. Only one Fed policymaker had done so when economic forecasts were last issued in March.
A sharp slowdown in U.S. hiring in May had fueled doubts about the strength of the labor market going into the Fed's two-day policy meeting. Fed Chair Janet Yellen acknowledged the need to see clear signs of economic strength before lifting rates.
"We do need to make sure that there's sufficient momentum," Yellen told a news conference.
The Fed also said the economy would grow only 2 percent this year and in 2017, 0.1 percentage point lower than previously forecast for each year.
It also cut its longer-term view of the appropriate federal funds rate, its benchmark lending rate, by a quarter point to 3 percent and indicated it would be less aggressive in raising rates after the end of this year.
Yellen was not clear on whether a rate increase could come at the next policy meeting in late July or whether the central bank would wait for a slew of firmer data as it headed into its September meeting.