Friday February 24, 2017 - 21:23:51 GMT
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Fed Minutes Never Fail To Move The Markets
John M. Bland, MBA
FOMC Minutes Impact Markets But Send No Clear Signals The Fed releases the Minutes of each policy board meeting three weeks following each decision. One would think that after its policy statement, and quarterly, a press conference, that they would say nothing new. However, Fed Chair Yellen reserves the right to include additional topics discussed at the meeting that had not otherwise been released. This means that the Fed has the ability to tweak the Minutes and bring up-to-date by including additional items and thus to "shape" the message sent to the markets.
Markets had a little indigestion trying to digest the latest Minutes this week. As expected, the Fed left open the door to the RISK of a Rate hike as early as the March 15 FOMC ("fairly soon"). However, no clear "go" or "no-go" signal was sent. It appeared to me that they still WANT to hike rates in March. They hinted that the February employment data on March 10 could be decisive. The next Fed meeting will be only five days (including a weekend) later. They also noted that officials saw "heightened uncertainty" surrounding the policies of the new administration. Some suggest that the next hike may be deferred until May or June. I think it all depends on the data. The Fed appears to want to embark on a policy "normalization" path soon. Traders still have trouble believing the Fed has the courage to go through with a rate hike. For Yellen to have any future credibility, she should hike rates soon.
Fed Funds futures odds for a March Fed rate hike are running at 38%. This means markets are not as convinced as I am about a March 15 hike. My odds are more on the order of 70%. I think a final decision will not be made until the February employment data are released on March 10. Markets now place the odds for a June hike at 112%. That is one rate hike plus a little risk of another.
European Political Uncertainty Weighs On EUR And Gives Bond Prices A Lift Investors have also started to focus on the risks stemming key leadership elections in Europe over the rest of the year. Many worry about the possibility of a swing to right as has been seen in the U.K. (Brexit) and U.S. (Trump). Such could be a challenge to the status quo in the EU. These concerns are being manifested in a weaker EUR and demand for sovereign debt (flight-to-safety) in both the EZ and abroad (especially U.S., U.K., and Japan).
New Treasury Secretary Mnuchin Comments New Treasury Secretary Steven Mnuchin TV appearances just after being confirmed in his job. Traders keenly awaited his comments as there has been a lot of talk about forex by the President. Mnuchin was well-prepared and very cautious in his words. Clearly, he had been pre-warned about how how the markets could react strongly to any statement he might make. He did confirm that China's forex policy is an issue. He also expressed concerns that the "Volcker Rule" has been reducing market liquidity. He said he does not want to return to banks running prop desks. It is unclear what he might have in mind, but it is certain that he is aware of the issue of periodic bouts illiquidity in the markets. He also expressed concerns that Dodd-Frank law could be restraining bank lending.
WEEKLY Forex Economic Calendar:
27 Feb Mon
13:30 US- Durable Goods
28 Feb Tues
07:00 DE- Retail Sales
10:00 EZ- flash HICP
13:30 US- GDP
15:00 US- CB Consumer Confidence
15:30 US- EIA Crude
1 Mar Wed
All Day- final Mfg PMIs
08:55 DE- Jobless
13:30 US- PCE Deflator
15:00 CA- Bank of Canada Decision
15:30 US- EIA Crude
19:00 US- Beige Book
2 Mar Thu
13:30 US- Weekly Jobless
23:30 JP- CPI
3 Mar Fri
All-Day SVC PMIs
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 co-founder www.global-view.com
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