Saturday October 17, 2015 - 10:37:28 GMT
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Expectations For A Fed Tightening Fading
John M. Bland
End Of Year Factors Starting To Surface
At one point it was dead certain that the Fed would raise rates in September for the first time since the start of the "Great Recession", but they did not and it increasingly is looking as though that train has left the station. Recent economic data have been pointing more and more in the direction of a global economic slowdown and the markets now are no longer expecting a rate hike this year, and even the market odds for a March 2016 rate hike have now eased to 50-50. Many feel that the Fed likes to take a low profile into national elections, so there is a possibility that rates may not be hiked at all in 2016. Fed speakers tell us that policy is data-dependent and I believe it is. After two disappointing Employment releases for August and September, the data are pointing in the direction of a slowing economy. The Fed wants to tighten, but it might not be able to do so. We have been hearing growing concerns about the impact of elevated value of the dollar on the U.S. economy. So this is an issue that might have to be addressed at the policy level. There is a growing realization that the U.S. economic growth problems are structural and will not be solved by monetary policy.
Forex Market Developments
October is an important month for a number of fund managers as many mutual funds end their fiscal year. It is also the window when many hedge funds provide their investors with an opportunity to declare their intentions to withdraw capital or lock it up for another year. This year has seen a couple of high profile closures of hedge funds which had sub-par performance over the past couple of years. Some are saying that position liquidations due to investor redemptions at these funds (and others) have had a significant impact on the forex markets in recent weeks.
Many funds have been finance their investments with euro and yen loans. The currency loans have to be repaid when investments are liquidated. These repayments have been generating demand for EUR and JPY and resulted in USD selling. I feel this been a major source of the USD weakness this month.
The upcoming week is a relatively slow period for major economic data.
-- Monday October 19, CA- Federal Election, CN- GDP, US-NAHB Index
-- Tuesday October 20, US- Housing Starts & Permits
-- Wednesday October 21, JP- Trade, CA- Bank Of Decision, US- Weekly Crude
-- Thursday October 22, GB- Retail Sales, EZ- ECB Decision, CA- Retail Sales, US- Weekly Jobless, Leading Indicators. Existing Homes Sales
-- Friday October 23, Global flash PMIs-- CN, JP, EZ, US, CA- CPI
Be sure to refer daily Global-View to see the continuously UPDATED Economic Calendar and the Forex Forum for the complete list of key items (actual data, selected charts, etc.) as they are released.
John M. Bland
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