Friday May 26, 2017 - 17:23:22 GMT
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Somehow Fed Policy Is Back In PLay Again
John M. Bland, MBA
Fed Resolve Waning? Wednesday May 24 saw the release of the Fed Minutes from the FOMC meeting which concluded on May 3. Minutes for FOMC conferences are released three weeks following each Fed meeting. A key point about the Minutes and why the markets react to them is that while they are based on the meeting, the Fed can choose to emphasize whatever it feels are the relevant comments in the light of subsequent developments nearer to the release date. It turns out that the Fed Minutes have become an "update" to the policy statement released immediately after the Fed meeting. Astute analysts typically look for subtle changes from the initial policy statement to read the current policy bias. This explains why the markets can react strongly to this release.
The Minutes from the latest FOMC meeting gave markets pause as they perceived that the FOMC was edging away from what was thought to be a hawkish posture on May 3. The minutes implied policymakers may now want to see more convincing proof that the U.S. economic slowdown is temporary before they raise interest rates. Some said it would be "prudent to await additional evidence...that a recent slowdown in the pace of economic activity had been transitory".
Most traders had been thinking a Fed rate hike on June 14 was a done deal. I am still betting on a 25bp rate hike, but acknowledge that more weaker than expected inflation data could keep the Fed on hold. I feel that the bias of the central bank is for a rate hike, and that policy normalization remains the top policy objective. Look for upcoming data to have a significant impact on the USD depending on whether they break, stronger or weaker. Fed Funds Futures are currently 78% odds on a June 14 rate hike. That is very close to the 80% odds late Tuesday and are still about as close to certain odds as these things go.
U.K. Vote Becoming A Horse Race It is hard to believe, but the twenty percentage point lead of PM May's Conservative Party over Labour in opinion polls has dwindled to just five as the June 8 election approaches. Some cite some questionable proposals and decisions by PM May’s government as the reason for the slide. Latest polls do not fully measure any impact from the terrorist attack in Manchester. As a result of the polls, the GBP has started to slide again.
Amazing Trader EVENT RISK Calendar:
Mon 29 May
00:00 GB, US- Holiday
Tue 30 May
14:00 US- Consumer Confidence
Wed 31 May
07:55 DE- Unemployment
09:00 EZ- flash HICP
12:15 US- ADP Payrolls
15:00 US- EIA Crude
Thu 1 Jun
All Day Global Final Mfg PMIs
12:30 US- Productivity
Fri 2 Jun
12:30 US- Employment
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-founding partner www.global-view.com
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