FOMC voted unanimously to leave its policy rate within a target range of 0.50-0.75%. The outcome had been widely anticipated as the Fed just adopted rate hike of +25 bps in December. Only minor changes were seen in the accompanying statement. In short, policymakers retained the stance that future interest rate change would be 'data dependent'. They also reiterated that economic conditions will evolve in a manner that will warrant only gradual increases in the federal fund rate'. The market has only priced in 2 rate hikes this year, although the December dot plot signaled there might be 3. CME’s 30-day Fed fund futures suggested a 17.7% chance of rate hike in March, down from 20.3% prior to FOMC meeting. Yet, they priced in a 38.8% chance in May, compared with 37.7% the day before the meeting.
Dollar remains generally weak today after a rather weak recovery attempt. And, much better than expected ADP job data seems providing little inspiration. FOMC rate decision will be the main focus today but would likely be a non-event. Firstly, there practically no chance for Fed to adjust monetary policy at today's meeting. Secondly, after some hawkish Fedspeaks back in January, there were a little speculation of a March hike. And Fed could make use of today's statement to signal this.
Dollar is trying to recover today but remains the weakest major currency as markets turn their focus to FOMC rate decision today. The greenback has been under much selling pressure since the start of drama of US president Donald Trump's executive order on immigration ban. And more certainties are added after Trump called China and Japan playing their money markets. Also, his trade adviser Peter Navarro complained that the Euro was "grossly undervalued". Markets' enthusiasm over Trump's expansive policies diminished much this week and that can clearly be seen in the sharp pull back in stocks. DJIA ended down -107.04 pts or -0.54% at 19865.09, moving further away from 20000 handle. 10 year yield also lost 0.032 to close at 2.451. Dollar index is back below 100 handle, trading at around 99.8 at the time of writing.
Euro surges broadly today on much stronger than expected inflation reading. Flash CPI rose 1.8% yoy in January, up from prior month's 1.1% yoy, and beat expectation of 1.5% yoy. That's also the highest reading since February 2013. Core CPI, on the other hand, was unchanged at 0.9% yoy, in line with consensus. Eurozone Q4 GDP showed 0.5% qoq growth, up from 0.3% qoq, beat expectation of 0.4% qoq. Eurozone unemployment rate also dropped to 9.6% in December, better than expectation of being unchanged at 9.8%. That's also the lowest level since mid-2009.
Yen gains broadly on risk aversion as the drama of US president Donald Trump's immigration ban continued. DJIA closed down -122.65 pts, or -0.61%, at 19971.13 overnight, below 20000 handle. S&P 500 lost -13.79 pts, or -0.6%, to close at 2280.90. NASDAQ dropped -47.07 pts, or -0.83%, to end at 5613.71. Nikkei follows and is trading down -1.7% at the time of writing. Treasury yields, on the other hand, was steady, with 10 year yield closed at 2.482, up 0.002. Dollar struggled to find a clear direction but weakened mildly, except versus Sterling. The dollar index hit as high as 101.02 yesterday but failed to sustain above 55 day EMA, and is now back at 100.35. In other markets, WTI crude oil stays in recent range and hovers around 52.50. Gold is trying to regain 1200 as consolidation extends.
Dollar reversed earlier loss and trades higher in early US session. Traders are turning their eyes from the unrests and protests regarding US president Donald Trump's immigration ban executive orders. Instead the focuses are back on economic data and the anticipate of FOMC announcement later in the week. Released from US, personal income rose 0.3% in December while spending rose 0.5%. Headline PCE rose 0.2% mom, 1.6% yoy. Core PCE rose 0.1% mom, 1.7% yoy. In particular, the upward movement in core PCE should affirm the case for Fed to continue policy accommodation later this year.
Asian markets trade lower as the week starts on concerns of unrests and geopolitical tensions caused by US president Donald Trump's executive order regarding immigration ban. Trump signed an executive order last Friday, suspending entry of people from seven Muslim-majority countries for 90 days and suspending the refugee program for 120 days. The situation has then developed into a chaotic one as a federal judge in Brooklyn temporarily blocked part of the executive order. And there were waves of protests with ten of thousands of people rallied in US cities to voice the opposition of the order. The uncertainties over the situation weighed down on market sentiments As Nikkei lost -0.51%. In the currency markets, Dollar trades broadly lower except versus Kiwi. Yen surges on risk aversion. The uncertainties might take some time to clear.
The financial markets traded with solid risk appetite last week and the three major US equity indices surged to new record highs in US president Donald Trump's first week in White House. Markets took Trump's signing of some executive orders, include trade and immigration, as sign that he will deliver his election promise and push an expansive fiscal policy. Nonetheless, the rally in stocks and yields lost some steam towards the end of the week after disappointing Q4 GDP data. And Dollar ended mixed. Meanwhile, Sterling ended as the strongest major currency as Supreme Court ruled that prime minister Theresa May's Brexit plan must seek parliament approval. The sale of a new 40 year government bond in UK also attracted record demand, showing appetite for UK assets. Meanwhile, Yen ended as the weakest one as BoJ stepped up its asset purchases to cap the rally in JGB yields.
Dollar's recover lost steam quickly today and is set to end the week mixed. US GDP grew 1.9% annualized in Q4, below expectation of 2.2%. GDP price index rose 2.1%, met consensus. Durable goods orders dropped -0.4% in December, much lower than expectation of 2.6%. Ex-transport orders rose 0.5%, met expectations. UK prime minister Theresa May will meet US president Donald Trump in Washington today and that could be a focus. US futures point to a flat open and markets could turn into profit taking mode after record rerun in stocks.
Yen falls broadly today on news that BoJ boosted JGB purchases. The move is seen as an act under the so called yield curve control to cap surge in yields, which touched 11 month highs earlier this week. The central bank said today that it would buy JPY 450b of JGBs with maturity of more than five to 10 years. That's nearly 10% above the prior size of JPY 410b. Released from Japan, national CPI core improved to -0.2% yoy in December, up from -0.4% yoy and above expectation of -0.3% yoy. Tokyo CPI core rose to -0.3% yoy in January, up from -0.6% yoy, and above expectation of -0.4% yoy. The set of inflation data showed mild improvement to inflation outlook. But it's still far from hitting BoJ's 2% target. Technically, yen is staying in consolidation against Dollar, Euro and Sterling for the moment in spite of the selloff in the past two days.
Dollar is trying to recover against other major currencies today as recent selloff looks exhausted. Initial jobless claims rose to 259k in the week ended January 21, above expectation of 245k. That's the highest level in a month due to holiday volatility. Initial claims have, nonetheless, stayed below 300k handle for the 99 straight weeks and counting, the longest streak since 1970. Continuing claims rose 41k to 2.1m in the week ended January 14. Also from US, trade deficit narrowed slightly to USD -65.0b in December. Wholesale inventories rose 1.0% in December.
Risk appetite continued in the market as US equities extended record run. DJIA finally took out 20000 handle to close at 20068.52, up 155.80 pts or 0.78%. S&P 500 closed up 18.3 pts, or 0.80%, at 2298.37. NASDAQ ended at 5656.34, up 55.38 pts or 0.99%. All three indices closed at new historical highs. Positive sentiments carried on in Asian session with Nikkei up 1.8% to above 19400 Notable strength was also seen in treasury yields. 10 year yield gained 0.052 to close at 2.523 while 30 year yield rose 0.052 to 3.108. However, the greenback continued to lag behind with Dollar index dipping through 100 handle to as low as 99.79. The index is trying to regain 100 handle at the time of writing but lacks momentum so far. In the currency markets, dollar remains the weakest major currency this week while Sterling is the strongest.
Global financial markets are trading in general risk seeking mode today. At the time of writing, European indices are trading in black with FTSE up 0.4%, DAX up 1.7% and CAC up 1.1%. US futures also point to higher open as S&P 500 and NASDAQ could extend their record runs. Meanwhile, DJIA is head for a take on 20000 handle again. In the currency markets, while the greenback remains generally weak, Aussie is even weaker after disappointing consumer inflation data. On the other hand, recent news regarding Brexit seems to be welcomed by the markets as Sterling surges broadly.
US stocks surged overnight as boosted by strong corporate earnings as led by tech and finance. There was additional support on news that president Donald Trump signed two executive orders with the construction of Keystone XL and Dakota Access oil pipelines. The orders were seen as rolling back Obama administration's environmental actions. S&P 500 closed up 14.87 pts, or 0.66%, at 2280.07, as record high. NASDAQ gained 48.02 pts, or 0.86%, to close at 5600.96, also a record high. DJIA also rose 112.86 pts, or 0.57% to close at 19912.71, heading to 20000 handle again. Treasury yield also rose with 10 year yield up 0.068 at 2.471. 30 year yield rose 0.065 to 3.056, back above 3.000 handle. But both TNX and TYX are stuck in recent range. Dollar index is still trying to defend 100 handle for the moment and probably need range breakout in yield to give it some sustainable momentum.
Chinese GDP expanded +6.7% in 2016, grabbing the mid-point of government's target of 6.5-7%. Growth is expected to decelerate further, probably reaching +6.5% this year. At the Central Economic Work Conference held last December, top leaders of the Chinese Communist Party indicated the policy would focus on controlling credit and housing risks, compared with stimulating growth in the past year. Yet, growth is still an issue concerning the government, with achieving growth targets a critical factor to ensure smooth leadership transition in late 2017. Meanwhile, renminbi should depreciate further. Besides the broadly-based strength in US dollar, concerns over further renminbi depreciation would continue to lead to huge capital outflow, a behavior that aggravate renminbi's weakness. We expect USDCNY to rise above 7 in 2Q17.
Sterling weakens against Dollar and Euro today after the UK Supreme Court ruled that Prime Minister Theresa May must get approval from Parliament before triggering Article 50 for Brexit negotiations. Nonetheless, a government spokesman noted that the ruling won't change the schedule and May would still trigger Article 50 by the end of March. Opposition Labour leader Jeremy Corbyn also said they wouldn't block the move. Instead, the Labour would seek to influence on the shape of the deal and seek "full, tariff-free access to the single market". May outlined the plan for hard Brexit earlier this month with emphasize of immigration control over single market access. Also from UK, public sector net borrowing dropped to GBP 6.4b in December.
Dollar recovers mildly today but stays in red across the board for the week so far. The dollar index hit as low as 99.89 and is trying to defend 100 handle for the moment. Treasury yields tumbled sharply overnight with 10 year yield closing at 2.403, down -0.064. But stocks were just a touch lower with DJIA lost -0.14% to close at 19799.85, staying in familiar range. Markets continue to reaction to US president Donald Trump's initial actions. It's reported that Trump promised business leaders to reduce tax with business regulations cut by 75%, or more. Regarding corporate tax, Trump noted that his administration is going to be "cutting taxes massively for both the middle class and for companies, and get it down to We're trying to get it 15 to 20%, from 35%.
The financial markets are trading in mild risk averse mode today. European indices started the week lower, following -1.29% loss in Japanese Nikkei. And FTSE, DAX and CAC are all staying in red at the time of writing, despite paring some losses. US futures also point to mildly lower open. Meanwhile, Dollar remains pressured as recent selloff resumes. Sentiments seemed to be weighed down by US president Donald Trump's protectionist tone in his inauguration speech. In addition, Trump has signaled renegotiation of the North American Free Trade Agreement and withdrawal from the Trans-Pacific Partnership trade pact. Meanwhile, he treated in US morning that it's going to be a "busy week with a heavy focus on jobs and national security". Markets will stay focused on what Trump would deliver.
Dollar weakens broadly as another week starts. EUR/USD and USD/CHF extend recent near term move with EUR/USD hitting as high as 1.0749 so far. GBP/USD also takes out 1.2432 resistance. Some analysts attribute the selloff in the greenback to uncertainty over US president Donald Trump's policies. The markets were generally let down by the lack of details, or even direction other than "America first", in Trump's inauguration last Friday. Trump reiterated over the weekend that he's going to withdraw from the Trans-Pacific Partnership trade pact. However, nothing has been said regarding what pushed the markets higher since election. That is, expansive policies with lower taxes and higher infrastructure spending. The greenback will stay weak until the markets get some more clarity on the issues.
US equities ended Friday mildly higher but closed the week down as US president Donald Trump's inauguration provided little inspiration to the markets. DJIA closed at 19827.25 comparing to prior week's close at 19885.73. S&P 500 closed at 2271.31 comparing to prior week's close at 2274.64. Treasury yields, however, were notably higher. 10 year yield closed at 2.467 comparing to prior week's close at 2.309. Dollar ended the week mixed, closing higher against Yen and Canadian but down against all others. Dollar index gyrated around 101 last week, where the 55 day EMA sits. In other markets, Gold hit as high as 1218.9 but lost momentum above 1200 handle. WTI crude oil stayed in recent range and closed at 53.24.