Managers are reporting a rising number of cases of newly hired grads and young workers becoming easily discouraged in the office. When things get tough, they sometimes even call their parents for advice.
Talking Points:
- This week saw Central Bank meetings from Japan and the United States. The Federal Reserve brought more of the same while the BoJ initiated a huge shift in policy.
- The Bank of Japan is now targeting the yield curve, specifically by targeting the yield on the 10-year JGB; while the Federal Reserve remained hawkish for 2016, but got more dovish for 2017 and thereafter.
- If you’re looking for trading ideas, check out our Trading Guides. And if you want something more short-term in nature, check out our SSI indicator. If you’re looking for an even shorter-term indicator, check out our recently-unveiled GSI indicator.
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BoJ Shifts Policy: Wednesday’s Bank of Japan meeting brought the ‘comprehensive assessment’ that the bank has been talking about since their July meeting. Investors have been ambitiously embarking on one of two themes with the Yen of recent: Either weak Yen in hopes of more stimulus or a strong Yen on the thought that the bank is running out of ammunition. And after the BoJ made such an aggressive move of instituting negative rates in January, markets have been growing increasingly skeptical that the almost-four years of outsized stimulus may continue in its current fashion. So this comprehensive assessment was a big deal because this could be the first step in an entirely new strategy from the BoJ in the effort of heading off decades’ worth of deflation.
In this shift of policy announced on Wednesday, the BoJ said that they will be targeting interest rates of the 10-year Japanese Government Bond, with the target of keeping the yield flat at 0%. This is markedly different than their previous approach in which their focus was aimed towards the amount of government bonds that they were purchasing, around ¥80 Trillion per year. And that approach appeared to work, at least somewhat at first, as the Yen weakened by more than 50% in the three years following the introduction of ‘Abenomics.’ But during summer of last year China began to slow down and Chinese markets collapsed, leading to a surge in the Yen as investors in China looked for safer harbors.
Matters haven’t really been the same since then. In response to weakness in China, the PBoC ‘revalued’ the Yuan by pegging the currency to a basket of currencies as opposed to just the US Dollar. And given that the Federal Reserve had been talking up the prospect of normalization, with the expectation of that beginning at last September’s FOMC meeting, ‘revaluating’ the Yuan in August probably seemed like a pretty good idea at the time. But that revaluation freaked out global markets, and in short order of that move from the PBoC, equities around the world began to collapse, to the point that the Federal Reserve had to back down from their planned interest rate hike in September of 2015.
But as normalcy was restored in US markets with multiple incursions of dovish commentary from numerous Federal Reserve members, the Yen just continued to strengthen, erasing more and more of the ‘work’ done by the BoJ after three years of Abenomics. This led to the Bank of Japan making the very surprising move to embark on the highly-theoretical, lightly-tested prospect of instituting negative interest rates in January of this year. And for the BoJ, this worked for about a day as it led to a single day of Yen weakness followed by seven-plus months of strength; erasing about another 20% of the weakness that was driven-in by three years of Abenomics.
Chart prepared by James Stanley
This is critical for the Japanese economy, which is highly dependent on exports. As the Yen strengthens, that’s a direct detraction from Japanese corporate profit margins. And each move they tried to make to help bring weakness into the Yen has seemingly fallen flat. So something new had to happen as the BoJ’s prior strategy was a) bringing diminishing marginal returns and b) continued to extend the banks presence in key markets like Japanese government bonds.
This move to target the interest rate on the 10-year government bond as opposed to the rigid ¥80 Trillion per year in asset purchases means that the BoJ has just given themselves a bit of flexibility as they can now buy as many or as few bonds as they might want in the effort of ‘steepening’ the yield curve, while also garnering the ability to be active by no longer targeting a specific duration. But this likely isn’t a panacea in and of itself, and may be a ‘step one’ type of approach for a ‘bigger picture’ strategy that the bank and Japanese government may be looking to institute in the coming months; perhaps with deeper coordination on the fiscal front to fund Japanese infrastructure projects.
So while Wednesday may not have brought upon the bazooka that so many were looking for from the Bank of Japan, this announcement and shift of strategy may have opened the door for the BoJ to do more, perhaps even with fiscal coordination, in the coming months. The one thing that is clear is that most interests in Japan are pointed in the same direction, with the goal of stimulating the economy out of decades’ worth of deflation. And with interest rates around the world remaining incredibly low, the opportunity exists to make long-term investments into infrastructure with future QE ventures.
The story of Japanese stimulus is likely not yet over; and while the bank’s firepower of their previous strategy may have been running low, the additional flexibility afforded by this move could reinvigorate the BoJ’s approach in the months of perhaps even the years moving forward.
On the chart below we’re looking at the recent move in USD/JPY after this week’s BoJ and FOMC meeting. And while the selling in the pair was aggressive on Wednesday, this sent price action down to a major support zone in the pair, with prices running into a projected trend-line and the vaulted psychological level at ¥100.00.
Chart prepared by James Stanley
FOMC: Gone Until November, or, Make that December
This will be considerably shorter as there was far less by way of new information here. As widely expected, the Fed did not hike interest rates at Wednesday’s meeting. And also as expected, they did stay hawkish by pointing to the potential for a rate hike in 2016, giving markets the ‘hawkish hold’ scenario that so many expected. But, noticeably different was the Fed’s expectation for interest rates beyond 2016. The dot plot matrix saw reductions for every year after 2016 despite the Fed staying hawkish for the remainder of this year. As we had mentioned previously, this most recent September FOMC meeting carried numerous parallels to last September, in which the bank’s ‘hawkish hold’ produced even more risk aversion. By getting more dovish deeper in the future, of which these expectations are frankly quite meaningless given the cavalier changes to the dot plot matrix that have been seen this year, and the fear of the ‘hawkish’ part of the stance is offset by the ‘dovish’ expectations for future rate moves.
Or, we can state this stance in another way – the Federal Reserve is expecting yield curve flattening on the back of their monetary stance while the Bank of Japan is now actively engaging in yield curve steepening.
Thickening the drama around this theme is the fact that we’re about to hear from numerous FOMC officials in the week ahead: Tarullo and Kaplan speak on Monday, Yellen on Tuesday, Bullard, Evans, Mester and George on Wednesday; followed by Lockhart, Powell and Kashkari on Thursday.
So we likely haven’t seen the end of USD-volatility around expectations for FOMC policy moves. On the chart below we look at the US Dollar, which ran down a projected trend-line as well after the recent Central Bank meeting. While USD is seeing higher-lows, it’s also in the midst of lower-highs. This is indicative of a congestion pattern that will, eventually, lead to a breakout. The big question is which side, and that will likely be answered, at least in part, by the chorus of Fed speakers that we’ll hear from next week.
Chart prepared by James Stanley
--- Written by James Stanley, Analyst for DailyFX.com
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Livesquawk noting some new headlines that say that neither the Saudi's nor Iran can agree on what projections to use for freeze levels.
Iraq has also piped up and said that they won't think about capping output until it has reached 4.75-5mbpd.
Brent topped put at 48.23 after the earlier news and fell back to 47.51 after this news.
Forex news and economic data headlines 23 September 2016
News:
Data:
It's been another lively session that has seen yen and euro demand but the pound once again under pressure as Brexit uncertainties continue to dominate the landscape.
More text summary to follow.
Alla fine di una settimana frenetica, la maggior parte delle valute del G10 si sono in qualche modo stabilizzate.
Dopo essere salita dello 0,80% sulla scia della decisione sui tassi da parte della FOMC, la moneta unica è leggermente scesa a 1,12.
Durante la notte la coppia EUR/USD si è spostata di poco ed è stata scambiata all'interno di una banda di oscillazione molto stretta tra 1,1194 e 1,1212.
Manteniamo la nostra visione rialzista sulla coppia dato che la BCE ha chiarito di voler rimanere a bordo campo per ora, in attesa di ricevere ulteriori dati economici prima di aggiustare il suo programma di quantitative easing, mentre la Fed dovrà molto probabilmente ritardare il rialzo dei tassi USA.
Il dollaro neozelandese è stato il peggior performer del complesso G10 ed è scivolato dello 0,45% rispetto al dollaro USA con gli investitori che hanno aumentato le scommesse su un prossimo taglio dei tassi da parte della RBNZ [Banca Centrale Neozelandese].
A dire il vero, sebbene la Banca Centrale abbia deciso di lasciare invariato il tasso ufficiale di sconto, il Governatore Wheeler ha ricordato ai mercati che saranno necessari ulteriori interventi di espansione monetaria per assicurarsi che l'inflazione si avvicini al target prefissato.
La coppia NZD/USD ha continuato a muoversi verso il prossimo supporto che si trova a 0,7235 (minimo 13 settembre).
Sfortunatamente per la RBNZ, ci vorrebbe un taglio di oltre 25 punti base per tenere gli investitori lontano dal dollaro neozelandese dato che la caccia a alti rendimenti continuerà a dominare le loro decisioni di investimento. Di conseguenza, crediamo che un movimento verso il basso sia per ora limitato.
Ieri la Norges Bank ha dato una spinta alla corona decidendo di lasciare invariato il suo tasso di deposito a 0,50%. La coppia USD/NOK è scesa bruscamente a 8,08 prima di stabilizzarsi intorno a 8,12.
Con il crescere di pressioni inflazionistiche e un outlook di crescita incoraggiante, il rischio pende definitivamente verso la zona inferiore. Si può trovare un supporto a 7,97 (minimo 3 maggio), mentre una resistenza giace intorno a 8,40 (massimi precedenti).
I rendimenti azionari sono stati misti quasi dappertutto durante la sessione asiatica con i trader che sono stai restii nel caricare posizioni di rischio prima del week-end.
Dopo una giornata di chiusura, i titoli azionari giapponesi hanno aperto in ribasso con l'indice Nikkei e Topix che sono scesi dello 0,32% e 0,23% rispettivamente.
Nella Cina continentale, l'umore non era molto migliore con entrambi gli indici Shanghai e Shenzhen Composite che hanno segnato un calo dello 0,19% e 0,38% rispettivamente. In altre zone, l'Hang Seng di Hong Kong è rimasto piatto, mentre a Taiwan il Taiex è cresciuto dello 0,53%.
In Europa, i future azionari vengono scambiati leggermente in ribasso con il Footsie in ribasso dello 0,14% e l'Euro Stoxx 600 che è sceso dello 0,14%.
Oggi i trader terranno d'occhio gli indici PMI della Francia, Germania, Eurozona e USA; l'indice dei prezzi alla produzione della Spagna; le vendite al dettaglio e l'indice dei prezzi al consumo del Canada.
What’s inside:
On Wednesday, we took a look at the double-top which formed back in August/September and considered the potential for the bounce unfolding this week only to be a retest of the neckline (old support turned new resistance). It was also noted we needed to see a turn lower in momentum, first, before considering it a valid retest. That wasn’t the case.
US markets got a shot in the arm following the outcome of the FOMC on Wednesday, and thus giving global risk appetite a boost into yesterday as well. That boost pushed the DAX clearly through the neckline and has taken all double-top considerations off the table, and, to the contrary, has increased the likelihood we see continue to see higher prices in the short-run.
The DAX sits perched not far below the double-top highs between 10780 and 10806 to be exact. A push to those levels is expected at the least in the near-term, even higher looks probable as long as the German index doesn’t find a slew of sellers off those peaks. That is to say, a shallow pullback or sideways price action at that juncture would suggest stocks are in demand and want to trade higher.
In the very near-term, pullbacks are viewed as potential buying opportunities up to around 10800 as long as support in the 10500 vicinity holds. This lines up with yesterday’s low at 10491. If the market is as strong as it has represented in recent trade, a decline that aggressive looks unlikely, but nevertheless that is our line-in-the-sand. A strong drop back below support and the low of yesterday’s ‘power’ day would be cause for pause on a bullish bias. If the DAX should trade up to the old peaks we will reexamine price action and go from there.
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© Ansa. Cambi: euro poco mosso a 1,12 dollari(ANSA) - ROMA, 23 SET - Euro fermo sulle posizioni della vigilia in avvio delle contrattazioni in Europa. La divisa statunitense quota 1,1204 contro 1,1218 della vigilia dopo la decisione della Fed di lasciare i tassi invariati.
The All Industries Activity Index measures the monthly change in overall production by all sectors of the Japanese economy. The index closely follows Japanese gross domestic product (GDP) and overall growth figures.
Better than expected but way down on previous reading. Old hat though given it's July data.
USDJPY 101.14
Daily
Chart Prepared by Jamie Saettele, CMT
DailyFX Trading Guides and Forecasts
-There is no change…Cable is respecting the triangle. “The gap to open trading post-Brexit is thus far of the breakaway variety. The current level (slope line near 1.2800) could inspire a ‘squeeze’ as part of consolidation before another leg lower.” 1.2800 is still the low and it appears as though a triangle is forming from the July low. The triangle support line is just under the market and should be watched for support. Failure to hold would shift focus to 1.2604 (127.2% expansion of triangle width).
For more analysis and trade setups (exact entry and exit), visit SB Trade Desk
Investors poured $1 billion into U.S. Treasury funds in the week ended Sept. 21, the funds' biggest inflows since mid February, data from Thomson Reuters' Lipper service showed on Thursday.
Investors also committed $758 million to international and global debt funds, the funds' biggest inflows since late July. Stock funds posted $3.4 billion in outflows, their fifth straight week of investor withdrawals.
(Reporting by Sam Forgione; Editing by Leslie Adler)
Daily
Chart Prepared by Jamie Saettele, CMT
DailyFX Trading Guides and Forecasts
-The possible yearlong head and shoulders pattern (lows in August 2015, February 2016 and August 2016) is intriguing but the right shoulder could form for quite some time before the next advance. 43 and mid-48.00s are well defined market levels (the former level has been support the last 3 days). A break of one of these levels is needed in order to set direction for the next move. For more on crude, check out this analog. Near term, watch for 47.72 resistance.
For more analysis and trade setups, visit SB Trade Desk
It's 46 days until voting begins in The Most Hated Election Ever™.
The battle has been going on for years but it truly starts with the first debate on Monday.
As I'm sure you already know, the polls have been tightening in the past few weeks but Hillary remains a prohibitive betting favorite because of breakdowns and skews in the electoral college.
Most betting sites have her at 1/2 or 4/7 (around 65%) while Donald Trump is at 18/8 or 7/4 (around 35%). But Trump has improved in the past month.
Realclearpolitics has her at 45.5% to Trump at 43.4% but there is quite a bit of variance. Expect to see more on state-by-state breakdowns and voter turnout in the next six weeks. There will undoubtedly be more polling than ever.
The leading idea in markets is that either candidate winning will result in a small window where Congressional leaders will work together and offer some stimulus to the US economy.
That might be a dangerous assumption but I'm an optimist and politicians are at their best when they're spending other people's money.
The government's blacklist of the most deadly and criminal enterprises in the world is being joined by an unlikely member.
On Thursday, the U.S. Treasury Department is announcing that PacNet, an obscure payment processor based in a nondescript highrise in downtown Vancouver, has been deemed a "significant transnational criminal organization."
According to the government, this designation is given to an organization that "engages in an ongoing pattern of serious criminal activity" and "threatens the national security, foreign policy, or economy of the United States."
And this little-known payment processor joins a terrifying cast of characters: The deadly Los Zetas drug cartel, the Japanese crime syndicate known as the Yakuza, and one of the world's most dangerous gangs, the MS-13.
Unlike many of these criminal enterprises, PacNet hasn't killed anyone or smuggled drugs across international borders. Instead, it's on the list for an entirely different reason.
On Thursday, the Treasury Department said PacNet "has a lengthy history of money laundering by knowingly processing payments on behalf of a wide range of mail fraud schemes."
"Despite PacNet's prior acknowledgement and the many notifications it has received regarding the fraudulent activity of its clients, PacNet continues to knowingly process checks on behalf of numerous companies that are actively involved in widespread mail fraud campaigns," the Treasury Department said in a statement.
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We spent months investigating this company, publishing an investigation Thursday that exposes how PacNet has profited from global mail fraud for decades -- processing payments for an alarming number of scams preying on the sick and elderly.
We are currently seeking additional comment from PacNet about the crackdown. But its attorney has been adamant that PacNet has never knowingly processed payments for scams and has consistently cooperated with authorities.
Part of a massive government crackdown on an international global mail fraud network, the Treasury Department's action is unprecedented -- attempting to shut fraudsters out of the financial system altogether.
Breaking: Massive crackdown on global mail fraud empire
As a result of the action, all U.S. banks, businesses and citizens are immediately prohibited from doing business with PacNet and all of its U.S. based assets have been frozen. In a coordinated action, the U.S. government is also seizing PacNet funds held at a U.S. bank, alleging that PacNet used the account to "facilitate money laundering" for illegal schemes -- noting that "a staggering quantity of mass mailing fraud has gone through PacNet accounts."
And while the U.S. government can't force banks and companies in other countries to cut ties with companies on this list of transnational criminal organizations, it says that many choose to do so anyway -- which could effectively cut off PacNet (and the fraudsters they process payments for) from the entire global financial system
"PacNet has knowingly facilitated the fraudulent activities of its customers for many years," John E. Smith, Acting Director of the Office of Foreign Assets Control, said in a statement on Thursday. "Today's designations are aimed at shielding Americans and the nation's financial system from the large-scale, illicit money flows that are generated by these scams against vulnerable individuals."
Read the full investigation here
La Video analisi sul mercato delle valute, proposta da Renato Decarolis.
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© 2016 Renato Decarolis
All rights reserved
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Talking Points:
In our last article, we looked at the bull flag formation that had built in Gold prices over the prior two months; after the aggressive move higher in the first half of the year collected and consolidated in a down-ward sloping trend-channel, producing a bull flag formation. And if we match this up with shifts from the Federal Reserve this year, it makes sense. As the Fed has backed down from near-term rate hikes, happening in February, and March along with an implied shift in June; Gold prices have moved aggressively higher as the US Dollar has weakened. And then as the Fed goes into one of those ‘hawkish commentary’ modes where many Fed officials talk up the prospect of higher rates, and Gold prices move lower as the Dollar strengthens to factor in those higher probabilities of a near-term rate hike.
Yesterday saw a similar such meeting from the Federal Reserve, although the price action emanating from the announcement may not have the staying power that Gold bulls are looking for. The US Dollar tanked around yesterday’s FOMC meeting as the bank adjusted rate expectations for 2017 and thereafter. However, the Fed did remain relatively hawkish for 2016, carrying the expectation that ‘the case for a rate hike has strengthened,’ opening the door for a potential move in December. The really attractive top-side setup in Gold will be when the Fed finally capitulates on this theme, which will likely happen should risk markets wobble as we move towards that December meeting.
The current setup in Gold remains near-term bearish but longer-term bullish, working deeper into the two-month old bull flag formation: And after yesterday’s 2.3% rip off of the lows, chasing Gold prices higher from here could be a daunting prospect, as it seems as though we’re waiting for the next ‘lower-high’ to print within the downward sloping channel.
To set stance moving forward traders can watch for the recent swing levels in order to define stance. The prior swing high from two weeks ago is at $1,352.49; and should price action break above this high we’ll also have a break above the flag/channel formation. This could be assigned bullishly, at which point traders can try to catch a ‘higher low. The 23.6% Fiboancci retracement of the post-Brexit move at $1,345.56 could be an opportune zone to begin watching for this should higher-highs come into the equation.
On the support side of price action, we have a potential higher-low in mid-September, above the prior swing-low set earlier in the month. Should price action revisit this zone around the 50% Fibonacci retracement around $1,312.57, while staying above the $1,306 swing low, a top-side setup could be sought out within the channel formation itself.
Chart prepared by James Stanley
--- Written by James Stanley, Analyst for DailyFX.com
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The economic calendar is light on data (but has some big speakers). Two releases are due at the bottom of the hour but they're unlikely to be market movers. Initial jobless claims are expected at 261K and the Chicago Fed national activity index is forecast to slip to 0.15 from 0.27.
Later, reports on Eurozone consumer confidence and existing home sales are due.
News:
Data:
As markets reflect on the FOMC decision/indecision we've seen the yen under fire again while the euro has enjoyed some good support with the pound lagging.
More summary to follow.
What’s inside:
We looked at silver from a short to medium-term perspective on Tuesday, then provided a long-term outlook, and today we are back to the short-term. For the macro-perspective, check out yesterday’s commentary – Silver Prices: Macro-techs Point to Bull Market Continuation.
Prior to the FOMC yesterday we were already seeing good buying pressure in silver; the expected hold and hawkish tone of the Fed ignited volatility in the minutes to follow, but ended up seeing the metal higher on the session when all said and done.
The 3%+ rally pushed silver up against the top-side trend-line running back to the July spike high. This makes establishing a fresh long at this juncture a risky prospect in our view – we don’t buy resistance nor sell support. Simple as that. However, just because a market is up against a level doesn’t mean we fade it either, unless there are indications the level(s) in question are rejected and momentum turns back the other way.
For would-be shorts, a turn in momentum may offer an opportunity to see silver back lower into the contracting range. A break above trend resistance would likely prove to be a significant bullish event given the points outlined yesterday, and warrant covering shorts and looking at taking the other side of that trade.
A decline from here would help work towards a more ideal scenario from the standpoint of seeing volatility contract further before expanding and see silver launch higher in line with the longer-term outlook.
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Questa mattina, nella mia video analisi live, troverete spunti operativi sui principali cambi valutari, oltre a indici e commodities:
DAX
FTSE MIB
S&P 500
Petrolio Greggio
Oro
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MPC members will be:
No further detail at present.
The newly formed MPC will serve with recently appointed RBI governor Urjit Patel.
We welcome any comments/insight from our readers in India as always.
Bund futures up 48 at 164.32
Greetings one and all.
How did you fare with the Fed? All gone according to plan?
Data wise it's a thin one today but event wise we do have Draghi stepping up to the rostrum.
Plenty for the markets to get a grip on anyway following the BOJ and Fed decisions/indecisions.
As always I wish you a good session.
Times GMT
And ... breathe out ....
A subdued session for Asia today after the big central bank meetings in the preceding 24 hours, with Japan on holiday a contributing factor also. It was a data-free session, though we did get some more central bank activity; a Reserve Bank of New Zealand announcement and then new Reserve Bank of Australia Governor Lowe appeared before an Australian parliament economics committee (you'd think the politicians on this committee would have a clue about economics wouldn't you? But I digress).
It was RBNZ time first, the bank leaving the official cash rate on hold, as was widely expected, but with a distinct dovish lean to the statement that came with the decision. Market expectations were slightly leaning the other way on this statement, with recent data painting a once again strong picture of the NZ economy. The dovish emphasis in the statement was also accompanied by some jawboning to talk down the NZD. An initial dip for the NZD did not last too long; it rebounded in following hours to make a (very slight) new session high before settling closer to the middle of the session range as I update.
RBA Governor Lowe said nothing to surprise or scare the market. AUD/USD had a narrow range session, running along not far from session highs. Governor Lowe revealed previous Governor Stevens had left him a gift, a coffee mug labelled 'half full'. And, Lowe's cautious optimism could well have been him channelling Stevens today in the testimony.
USD/JPY tested a little lower, but didn't manage to reach 100 before grinding out a bounce back to just under 100.50. A small range for it today.
Similar small ranges for EUR, CHF and GBP with little news nor developments to impact.
Oil is a little stronger, gold little changed.
Regional equities send their hugs and kisses to the FOMC:
Still to come:
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Talking Points:
The Euro slid back to the bottom half of its recent range near 1.11 against the US Dollar after an expected rebound fizzled above the 1.12 figure. Positioning seems to suggest that the break of the uptrend from late-July lows remains valid, arguing for a cautiously bearish bias in the near term.
Immediate support is in the 1.1097-1.1123 area (August 31 low, 38.2% Fibonacci expansion). A break below that on a daily closing basis opens the door for a challenge of the 50% level at 1.1014. Alternatively, a turn back above the 23.6% Fib at 1.1200 paves the way for another test of the 14.6% expansion at 1.1263.
A short EUR/USD trade was triggered at 1.1207. While progress has been slow, the path of least resistance continues to favor the downside. As such, the position will remain in play with an initial target at 1.1097 and a stop-loss activated on a daily close above 1.1263.
Are retail traders buying or selling EUR/USD? Find out here!
In her press conference, Janet Yellen said that so long as job gains continue in the next few months and there are no shocks, then a hike is December is coming. That's a low bar and reflects the eagerness to ratchet up rates.
Beyond that, what was striking about the Fed and Yellen was the negativity in the longer-term. The growth and inflation forecasts were ramped down. They see just 1.8% growth this year, 2.0% in 2017 and 1.8% in the longer run. On inflation, they no longer see a return to 2.0% PCE inflation until 2018 (rather than 2017).
The US dollar is near the worst levels of the day on all fronts and already there against the commodity currencies.
I'm skeptical that dollar selling will last. These gains in the stock market may pull in some inflows.
September FOMC: Federal Reserve Holds Rates
Talking Points:
- September FOMC meeting brought no rate hike with a 7-3 vote.
- Attention now moves to meetings in November and December. With US elections taking place approximately one week after the November FOMC meeting, December is looking considerably more likely for any future actions or statements.
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Story developing; article will be updated during/after the accompanying press conference.
Updated 3:12 ET
Chair Yellen with a couple of relevant comments regarding scope of monetary policy and motivation to continue moving towards normalization. Chair Yellen said, ‘I do have concerns over scope of monetary policy, zero lower bound is a concern.’
And in response to a question about bubbles forming in response to continued ‘emergency-like’ monetary policy: ‘While nobody can know for sure what type of valuation represents a bubble, that’s something that one can only tell in hindsight.’ She then went on to say ‘Of course we’re worried bubbles could form, commercial real estate valuations are high.’
Updated 2:54 ET
Chair Yellen with some comments regarding near-term rate policy. She said ‘most (members) judged immediate case for a rate hike stronger, also judged more sensible to wait for more evidence.’
She also went on to say that the Fed ‘sees one rate hike this year if labor gains and no new risks.’
Reaction in the U.S. Dollar has been choppy, as we’re currently trading towards the middle of the range in USD that’s developed around this afternoons FOMC event.
Chart prepared by James Stanley
Updated 2:38 ET
As Ms. Yellen takes the podium to begin the press conference, US equities were putting in very similar behavior to last year’s hawkish hold. Initially spiking higher on the announcement of no rate hike, but reversing as it becomes obvious that the Fed is still displaying a hawkish stance for the remainder of the year.
But after Ms. Yellen began the press conference at 2:30 PM ET, stocks began to claw back gains.
Chart prepared by James Stanley
Updated 2:12 ET
Provided by Mr. Michael Boutros, this is the adjusted dot plot matrix with lower FOMC expectations for 2017 and 2018. Notable are the number of votes still looking for a rate hike in 2016, and with the next FOMC meeting just one week ahead of US Presidential elections, this makes December looks to be very interesting.
Chart created by Michael Boutros
September FOMC Meeting
At today’s widely-awaited meeting from the Federal Reserve, the bank has decided to hold the deposit rate flat with no change to near-term monetary policy.
Context Ahead of September FOMC Meeting
Coming into the September Federal Reserve meeting, there was quite a bit of divergence between FOMC and market expectations around near-term policy adjustments. Over the past few months, the Federal Reserve has been getting increasingly more hawkish. In April, we saw the bank remove a key phrase from their statement to give a ‘less dovish’ read to markets. Previously the Federal Reserve had mentioned that they were cautious around ‘global risks’ within the economy, and this was seen as a point of resistance to future rate hikes. But when this statement was removed in April, it gave the allusion that the bank may be more aggressively entertaining policy options for tighter conditions.
Later in July, a very similar scenario happened when the Federal Reserve made another hawkish tweak to their statement, but this time it was the addition of a new phrase saying that ‘near-term risks to the economic outlook have diminished.’ This implied that the bank was feeling more comfortable with the recovery in the US economy and, again, may be more aggressively entertaining options for tighter policy in the coming months.
And towards the end of August, we had another hawkish indication from the Federal Reserve with comments from Chair Yellen and Vice Chair Stanley Fischer at the Jackson Hole Economic Symposium. Both officials denoted the possibility of a rate hike today at the September FOMC meeting, but it was Mr. Fischer’s commentary that really seemed to drive price action.
So, if all of this is giving the inference of higher rates, why is this topic being so widely debated or so heavily watched? The reason is similar to the allegory of the ‘boy who cried wolf.’ After numerous pleas towards higher rates in the recent past, in many cases causing risk aversion and fear, markets appear to be growing increasingly skeptical that the Fed will actually hike rates in the near future unless the economy is absolutely ready for those tighter conditions. The Fed has talked up higher rates numerous times only to back down in the face of market sell-offs.
This has brought up the concept of the ‘Fed Feedback Loop,’ where monetary policy is being shifted or adjusted based on asset prices rather than directly on the factors of the dual mandate (inflation and employment) of the Federal Reserve. As stock prices have moved higher, the Fed’s grown more hawkish. And when stock prices then turn around in response to the expectation around tighter monetary conditions, the Fed has gotten more dovish.
Today’s meeting represents an opportunity for the Federal Reserve to move back in the driver’s seat: Multiple Fed members have talked up higher rates, but few market participants appear to actually be expecting a hike today (as of this writing CME Fedwatch probabilities are at around 18% for a hike today). If the Fed does actually hike today, this could address the apparent co-dependence that markets have appeared to build-in around Fed policy.
--- Written by James Stanley, Analyst for DailyFX.com
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