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Fed chair Jerome Powell press conference live stream
Fed stands pat, acknowledges below target inflation, but maintains patient stance
FOMC left federal funds rate unchanged at 2.25-2.50% as widely expected, on unanimous vote. On inflation, Fed acknowledged that headline and core inflation “are running below 2 percent.” But “longer-term inflation expectations are little changed.”
It maintained that “sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective as the most likely outcomes.”
Fed also maintained its patient stance on future interest rate adjustments.
Full statement below.
Federal Reserve Issues FOMC Statement
Information received since the Federal Open Market Committee met in March indicates that the labor market remains strong and that economic activity rose at a solid rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Growth of household spending and business fixed investment slowed in the first quarter. On a 12-month basis, overall inflation and inflation for items other than food and energy have declined and are running below 2 percent. On balance, market-based measures of inflation compensation have remained low in recent months, and survey-based measures of longer-term inflation expectations are little changed.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent. The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective as the most likely outcomes. In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes.
In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.
Voting for the FOMC monetary policy action were: Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; James Bullard; Richard H. Clarida; Charles L. Evans; Esther L. George; Randal K. Quarles; and Eric S. Rosengren.
US 10-year yield resumes free fall, 2.463 support in focus
US 10-year yield resume recent free fall today and breaks 2.5 handle with ease. At the time of writing, it’s down -0.034 at 2.475. As noted before, TNX has likely completed the corrective recovery from 2.356 at 2.614, after rejection by 55 day EMA. Focus is now immediately on 2.463 support. Firm break there would confirm this bearish view. Larger decline from 3.248 should then be resuming.
And, in the bigger picture, TNX was also rejected by long term channel support turned resistance, and held well below 55 week EMA. Break of above mentioned 2.463 near term support will likely send TNX to 50% retracement of 1.336 to 3.248 at 2.292. We’ll then see if bullish convergence condition in daily MACD could contain downside there.
ISM manufacturing dropped to 52.8; New orders, prices, employment declined
Dollar is suffering more selling pressure after weaker than expected April ISM manufacturing report. The headline index dropped to 52.8, down from 55.3 and missed expectation of 55.0. Price paid index dropped sharply to 50.0, down from 54.3 and missed expectation of 55.7. Employment index dropped to 52.4, down from 57.5. New orders tumbled to 51.7, down from 57.4.
ISM noted that:
- Comments from the panel reflect continued expanding business strength, but at the softest levels since the fourth quarter of 2016.
- Demand expansion continued, with the New Orders Index softening to the low 50s, the Customers’ Inventories Index remaining at a ‘too low’ status, and the Backlog of Orders Index improving its prior month performance.
- Consumption (production and employment) continued to expand, but at lower levels, resulting in a combined decrease of 8.6 points.
- Inputs — expressed as supplier deliveries, inventories and imports — were higher this month, primarily due to inventory growth exceeding consumption, resulting in a combined 1.5-percentage point improvement in the Supplier Deliveries and Inventories Indexes.
- Imports contracted during the period.
- Overall, inputs reflect a more stable business environment, confirmed by the Prices Index at zero price growth, or unchanged.
- Exports orders contracted for the first time since February 2016. The PMI® trade elements are in contraction territory. The PMI® has been inching down since November 2018. The manufacturing sector is expanding, but at recent historic lows.
Into US session: Europeans higher, commodities lower, Dollar mixed ahead of FOMC
Entering into US session, Dollar remains mixed as traders await FOMC statement. The markets were generally quiet today with many centers on holiday. Much stronger than expected ADP job report couldn’t provide any support to the greenback. Instead, the key for Dollar is whether Fed Chair Jerome Powell would dismiss talks of rate cut as premature. Or he’ll sound concerned with sluggish inflation and indicate openness on lowering interest rates.
At the time of writing, Swiss Franc is the strongest one for today, followed by Sterling. Pound shrugs off decline in PMI manufacturing in April. It’s extending this week’s rebound, in particular against Dollar, Euro and Yen. Euro is the third strongest. Meanwhile, New Zealand Dollar is the weakest one after poor job data, followed by Aussie and then Canadian.
Some suggested readings on FOMC:
- Traders Eye Fed’s Decision
- FOMC Preview: IOER Cut Possible, But Neutral Outlook Likely For Another Month
- Fed Meets as Rate-Cut Bets Mount
- FOMC Preview -Fed to Reiterate Patience Rhetoric Despite Strong First Quarter Growth, Focus on Soft Inflation
In other markets:
- DOW open slightly higher, up around 50 pts at initial trading.
- FTSE is down -0.07%.
- German, France, Singapore, Hong Kong, Japan, China markets were all closed
US ADP employment grew 275k, service sector strong
US ADP private employment grew strongly by 275k in April, well above expectation of 181k. Looking at the details, jobs in goods-producing sector rose 52k. Jobs in service-providing sector rose 223k.
“April posted an uptick in growth after the first quarter appeared to signal a moderation following a strong 2018,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “The bulk of the overall growth is with service providers, adding the strongest gain in more than two years.”
Mark Zandi, chief economist of Moody’s Analytics, said, “The job market is holding firm, as businesses work hard to fill open positions. The economic soft patch at the start of the year has not materially impacted hiring. April’s job gains overstate the economy’s strength, but they make the case that expansion continues on.”
ECB de Guindos: Interest rates to stay low even once monetary policy normalizes
ECB Vice-President Luis de Guindos reiterated the central bank’s accommodative stance in an event in London today. He said “the low interest rate environment is with us for the foreseeable future and is caused in large part by durable structural factors”. He added, “even once monetary policy normalizes, interest rates are likely to remain below levels that were common in previous decades.”
On Brexit, he said “I hope we will be able to take advantage of the new period of time that British government, parliament have at its disposable to reach an orderly Brexit. On Italy, he said “the main recommendation is to pursue reforms that improve the effectiveness of the economy.”
EU Katainen: Situation of British in European Parliament before Brexit looks very messy
European Commission Vice-President Jyrki Katainen complained that the prospects of British candidates getting into European Parliament just months ahead of Brexit creates a “messy” situation. He said “the UK has been given a deadline (to leave the EU) which is later in the autumn but the Commission president might be elected before that … It looks very messy at the moment.”
He added: “We have to make sure all MEPs have the same rights and responsibilities because we cannot be in a situation where some MEPs have a partial mandate … But a temporary majority may cause lots of questions and troubles.”
US Mnuchin concluded productive trade meetings with China Liu, next round in Washington
US Treasury Secretary Steven Mnuchin said he has concluded “productive meetings” with Chinese Vice Premier Liu He in Beijing. And, the discussions will continue in Washington next week. But there is so far no details regarding any progress made. Trade Representative Robert Lighthizer is quiet as usual on the topic.
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Earlier, China Banking and Insurance Regulatory Commission said it will further open up the banking an insurance sectors. And it plans to issue 12 new measures soon. The measures include dropping the USD 10B asset requirements for foreign companies to set up a legal entity in the country. The USD 20B asset requirements for foreign banks to set up a branch will also be removed. Approval procedures for foreign banks to conduct Yuan businesses will be removed.
UK PMI manufacturing dropped to 53.1, pre-Brexit stockpiling continues with solid but slower pace
UK PMI manufacturing dropped to 53.1 in April, down from 55.1 and matched expectation of 53.1. Markit noted that new export business declines. Also, stock-building continues at solid, yet slower, pace.
Rob Dobson, Director at IHS Markit, which compiles the survey:
“The upturn in the UK manufacturing sector eased at the start of the second quarter. Growth of output and new orders slowed, leading to job cuts for the third time in the past four months. The trend in new export business was especially weak, as high stock holdings at clients and slower global economic growth led to reduced demand from key markets such as the European Union, the USA and China. There were also reports of overseas clients acting now to re-route their supply chains away from the UK in advance of Brexit.
“A central theme at UK manufacturers during recent months has been stockpiling activity in advance of Brexit, and this process continued into April. Rates of increase in both inventories of inputs and finished products remained historically rapid, despite cooling from the record highs seen in March. Companies noted that the delay to the scheduled Brexit date meant they had to ensure levels of key inputs remained sufficiently large to cover as broad a range of outcomes as possible in coming months.
“The stock build has clearly still helped support production growth, with a number of companies attributing increased output in April to Brexit-related stock-building.
“Manufacturers’ outlook remained relatively upbeat, however, with over 50% forecasting their output will be higher in 12 months’ time. Companies plan to use new product launches, new technologies and improved marketing strategies to drive growth forward in the coming months. However, Brexit uncertainty continues to weigh on plans, as some firms remain concerned about future growth prospects and the likely impact on output and demand from the unwinding of inventory positions later in the year.”
Dollar to listen to Powell’s comments on growth in inflation, some previews
Dollar is staying generally week today, except versus Kiwi and Yen. But FOMC announcement ahead could change its fortune. There is no chance for Fed to change federal funds rate at 2.25-2.50%. Also, Fed will, without a doubt, maintain its patient stance regarding any monetary policy adjustment.
As a reminder, monetary policy normalization is considered largely completed after December’s rate hike. Balance sheet run-off is also on track to completion later this week. Generally speaking, policymakers would need strong evidence of an emerging trend in either inflation or employment to make another move.
Yet, an important factor to watch is Fed chairman Jerome Powell’s response to strong growth but sluggish inflation. Dollar bears would like to hear Powell mentioning the downside risks in inflation and the readiness to cut interest rate should outlook worsens. On the other hand, Dollar bulls would like to hear Powell dismissing the talks of rate cut as being premature.
Either way, Dollar would pick up its near term direction from there.
Here are some suggested previews:
Australia AiG PMI improved to 54.8, but employment and wage indices dropped
Australia AiG Performance of Manufacturing Index rose 3.8 pts to 54.8 in April, indicating faster growth. All subsectors except machinery & equipment, and metal products improved. Top concerns for manufacturers in April included the upcoming Federal election, high energy prices, high input costs (due to drought, a low dollar and high commodity prices) and tighter credit conditions.
Employment index dropped sharply by -5.1 pts to 51.5. The release also noted ABS data indicated that total manufacturing employment fell dramatically over summer, with a reduction in employment of 41,600 over the three months to February 2019 (-6.3% q/q, trend). Average wage index dropped -3.5 to 57.7, indicating lower wage pressures across the manufacturing sector. Also, this wage index has been trending down since peaking at September 2018.
New Zealand employment dropped -0.2% qoq in Q1, NZD dips
New Zealand Dollar drops notably today after weaker than expected job data. Employment contracted -0.2% qoq in Q1, below expectation of 0.5% qoq growth. Unemployment rate dropped to 4.2%, down from 4.3% and matched expectations. But labor force participation rate dropped -0.5% to 70.4%. Labor cost index rose 0.3% qoq, below expectation of 0.5% qoq.
Today’s data shouldn’t change RBNZ’s view that New Zealand is current staying at maximum sustainable employment. The reduced momentum in job growth and sluggish wage would provide little support to the already low inflation reading. Weak CPI is a key factor around the case of RBNZ rate cut in near term, probably in May, but the meeting remains live.
While NZD/USD dipped notably today, it’s staying in range above 0.6580 temporary low. More sideway trading remains in favor. But upside should be limited by 0.6718 resistance. Break of 0.6580 will target 0.6551 support next.
China to open up banking and insurance sectors as new round of trade negotiation with US starts
New round of US-China trade negotiations started in Beijing today. US Treasury Secretary Steven Mnuchin said he had a “nice working dinner” yesterday and “it’s good to be back here” in Beijing. It widely known that while progress has been made two key sticky points remained unresolved, an enforcement mechanism and the timelines for lifting imposed additional tariffs.
Meanwhile, China Banking and Insurance Regulatory Commission said it will further open up the banking an insurance sectors. And it plans to issue 12 new measures soon. The measures include dropping the USD 10B asset requirements for foreign companies to set up a legal entity in the country. The USD 20B asset requirements for foreign banks to set up a branch will also be removed. Approval procedures for foreign banks to conduct Yuan businesses will be removed.
BoC Poloz: Couple of negative developments caused detour of the economy’s way home
BoC Governor Stephen Poloz told the House of Commons Standing Committee on Finance that since six months ago, there was a “couple of negative developments” that have caused a “detour for the economy and are delaying its return home.” Nevertheless, he’s confidence that the impacts would be “temporary”, and “stronger economic growth will resume” after associated adjustments.
On the developments he said, firstly, the global economy slowed as affected by “US-led trade war”. Secondly, there was sharp decline in oil price late in 2018, which put Canada’s oil sector under “considerable stress”. Also, BoC have continued to watch how the housing markets is adjusting to policy measures and past rate hikes. Fourthly, combined impact of adjusted spending plans of federal and provincial governments led to reduction in growth projections.
Poloz noted that there is good reason to believe that the economy will accelerate in the second half of this year. In this context, the Bank’s Governing Council judges that an accommodative policy interest rate continues to be warranted.
US consumer confidence rose to 129.2, beat expectation of 126.5
Conference Board US Consumer Confidence rose to 129.2 in April, up from 124.2 and beat expectation of 126.5. Present Situation Index rose from 163.0 to 168.3. Expectations Index rose from 98.3 to 103.0. Lynn Franco, Senior Director of Economic Indicators at The Conference Board said while consumer confidence “partially rebounded”, it still “remains below levels seen last fall”. But overall, “consumers expect the economy to continue growing at a solid pace into the summer months”.
Also released from US:
- Pending home sales rose 3.8% mom in March, above expectation of 0.70% mom.
- S&P Case-Shiller 20 cities house price rose 3.0% yoy in February, below expectation of 3.1% yoy.
- Chicago PMI dropped to 52.6 in April, down from 58.7 and missed expectation of 59.0.
- Employment cost index rose 0.7% in Q1, matched expectations.
Into US session: GBP and EUR strongest, AUD weakest
Entering into US session, Sterling is the strongest one for today followed by Euro. The Pound is apparently lifted by news that Prime Minister Theresa May is targeting to conclude Brexit negotiation with Labour by mid next week. Euro’s rally was more solidly triggered by a string of stronger than expected data. Eurozone GDP grew 0.4% qoq versus expectation of 0.3% qoq. Germany CPI also accelerated sharply to 2.0% yoy in April, up fro 1.3% yoy and beat expectation of 1.5% yoy.
On the other hand, Australian Dollar remains the weakest ones for today as weighed down by China PMI misses. Sustainability of post lunar new year seasonal rebound in Chinese economy is in serious doubt. Swiss Franc, New Zealand and Canadian Dollar are among the next weakest. In particular, Loonie is dragged down by unexpected contraction in Canadian GDP in February.
In Europe, currently:
- FTSE is down -0.23%.
- DAX is down -0.19%.
- CAC is down -0.29%.
- German 10-year yield is up 0.0395 at 0.046.
Earlier in Asia:
- Hong Kong HSI dropped -0.65%.
- China Shanghai SSE rose 0.52%.
- Singapore Strait Times dropped -0.2%.
- Japan remains in ultra-long 10 days holiday.
UK May said to target to complete Brexit negotiation with Labour by mid next week
Several British media, including BBC and Guardian, reported today that Prime Minister Theresa May is now targeting to reach a Brexit compromise with opposition Labour Party by the middle of next week.
May’s spokesman had declined to set an end date for the talks, and described the latest round of talks as “serious and constructive”.
Separately, Labour Party is meeting today to hammer out its position on whether to demand a second referendum on any Brexit deal as part of its campaign for the European parliament election next month.
Canada GDP contracted -0.1% mom, missed expectations
Canada GDP unexpected dropped -0.1% mom in February, worse than expectation of 0.0% mom. Looking at some details, mining, quarrying and oil and gas extraction sector declines (-1.6%) for the sixth consecutive month. All subsectors decline. Transportation and warehousing contract as rail transportation drops -1.6%, largest fall since June 2011. That’s largely due to a 10.8% drop in rail transportation. Finance and insurance sector declined -0.6%., Manufacturing sector contracted -0.4%. Though, utilities were up 1.5% due to record-setting cold weather in Western Canada. Construction grew for the second month by 0.2%. Also from Canada, IPPI rose 1.3% mom, RMPI rose 2.8% mom in March.
Dollar and yield rebounded as Fed Powell talked down rate cuts
Dollar and treasury yields rebounded overnight after Fed Chair Jerome Powell talked down the chance of a rate cut after Fed kept interest rate unchanged at 2.25-2.50% as widely expected. In particular, 10-year yield hit as low as 2.455 earlier in the day but closed up 0.002 at 2.511, regained 2.5 handle. DOW closed down -0.61%, S&P 500 lost -0.75% and NASDAQ dropped -0.57%.
In the post meeting press conference, Powell noted that “our policy stance is appropriate at the moment” and emphasized “we don’t see a strong case for moving it in either direction. Fed acknowledged that both headline and core inflation were running below targets. But Powell said that’s mostly due to transient factors. He predicted inflation to pick rise back to 2% target ahead.
Here are some suggested readings on FOMC:
10-year yield recovered strongly after breaching 2.463 key near term support. But still, risk will stay on the downside as long as 2.614 resistance holds. Rebound from 2.356 is likely completed after hitting 55 day EMA. Sustained break of 2.463 should resume larger down trend from 3.248.
S&P 500 edged to historical intraday high at 2954.13 but reversed to close down -0.75% at 2923.73. SPX continued to lose upside momentum as seen in daily MACD. We maintain the view that it’s not resuming long term up trend despite breaching 2940.91 key resistance. Thus, near term reversal should be around the corner and break of 2891.90 support should at least confirm short term topping. Nevertheless, for sure, sustain trading above 2940.91 will prove our view wrong.