Friday March 10, 2017 - 21:32:22 GMT
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Creaky Monetary Policy Wheels Start To Turn
John M. Bland, MBA
Markets Say Wednesday Fed Hike is A Done Deal Just over a week ago Fed Chair Yellen came as close as a top Central Bank official ever comes to pre-announcing a policy tightening. As a result, the financial markets have priced in a rate hike at the FOMC meeting this Wednesday (March 15).The prospect higher interest rates has also given the USD a bid, driven the yield on the 10-yr note to above 2.60%, and has been weight on equity prices. Equities at time can get caught in the middle of a tug of war between higher interest rates, which can increase corporate borrowing costs and faster growth which tends to improve earnings.
After the Yellen comments, the Odds in favor of a rate hike at the FOMC have virtually become a lock (100%). Furthermore, the markets have now priced in the possibility of a total of three rate hikes between now and year end. Experience has taught me that while Fed Funds futures can be very accurate with their short-term forecasts, that long-term they are no better than anyone else. I prefer to use them as a current barometer of market sentiment rather than a forecast. Generally, I feel it would be better to take the Fed rate hikes one at a time and not to get too far ahead of events on the ground.
Mixed U.S. February Employment Data Friday saw the long-awaited February employment report from the U.S. As expected Non-Farm Payrolls grew by a strong 235K in the month vs. street estimates for a gain of 185K. Based on recent data, the so-called "Whisper Number" had increased to +225,000 heading into the report. Some downplayed the data because mild February weather had caused a rise in construction employment. Another issue was the continued softness in Average Hourly Earnings, which remained at a lacklustre 0.20% mo/mo. Some take the lack of earnings growth as an indication of slack labour demand.
ECB Mildly Hawkish
The ECB policy announcement proved to be a key event on Thursday. While the council did not make any changes to policy, analysts detected a shift in tone by the central bank. The Bank has become less concerned that the Eurozone economy might begin to slip again. Generally, the policy statement and press conference comments were notable because several dovish references were removed from earlier statements. Odds are that the ECB is in the early stages of planning to curtail its QE program. Odds are this will not happen until 2018, but markets will start to price in a change as soon as they begin to sense a shift in policy is at hand.
WEEKLY Forex Economic Calendar:
14 Mar Tue
13:30 US- PPI
15 Mar Wed
13:30 US- Retail Sales
13:30 US- CPI
15:30 US- EIA Crude
19:00 US- FOMC Decision
16 Mar Thu
03:00 JP- BOJ Decision
12:00 GB- BOE Decision
13:30 US- Weekly Jobless
13:30 US- Housing Starts/Permits
17 Mar Fri
14:15 US- Industrial Production
15:00 US- Univ of Mich (prelim)
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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