The benevolent Federal Open Market Committee duly kept interest rates on hold last week and signaled a lengthy pause in hiking rates! Quite a turn-around from late last year when analysts were pricing in at least two hikes in 2019.
And one which spooked markets on Friday, triggering a stock market sell-off, US yield-curve inversion and prophetical calls for a US recession. As I mentioned in my article of last week, the Fed had plenty of room to keep interest rates static, with both inflation and employment numbers failing to impress in the two weeks prior to this announcement.
But to say that the Fed won’t hike in 2019 comes as a shock, bearing in mind how quick they were to react to a stock market correction coupled with vociferous bullying from The US President in December.
This week, there are three data announcements that are quite crucial for US markets; US Consumer Confidence for March will be released on Tuesday expected at 132 vs 131.4 for February; the final reading of 4th quarter GDP is released on Thursday expected at 2.4%; and on Friday Core PCE ( The Fed’s preferred measure of inflation) is expected to read 1.9% Y/Y for January (rather better than CPI which came in at 1.5% Y/Y for February).
If any one of these releases is overly-poor, then perhaps we will see continued momentum for a sell-off in US stocks. Of interest too last week is how the trio of Gold, Japanese Yen and Swiss Franc all strengthened post the Fed announcement! I will certainly be keeping my eye on them this week!
The British Pound weathered the latest instalment in the BREXIT fiasco by maintaining a relatively tight range within 1.30-1.33 last week.
My guess is that patience has run out for Prime Minister Mrs May, her twice rejected plan and her Government. I think the chances of “no-deal” are increasing. I also feel that Europe is fed up, the British people are fed up, nobody wishes to take the blame for a bad deal and so the outcomes of “no-deal” and “remain” become more plausible.
In the context of falling stock markets and strengthening Yen, I can see room for GBPJPY to trade lower, especially as this week will be a politically horrendous week in the UK.
Last week, New Zealand 4th quarter GDP came in lower than expected at 2.3% Y/Y, Australian unemployment fell to 4.9% and Canadian CPI beat expectations with a print of 1.5% Y/Y for February. The Reserve bank of New Zealand will release its interest rate announcement this week on Wednesday with rates expected to stay on hold at 1.75%.
There have been calls for New Zealand to cut interest rates, so any longs should be prepared for a possible surprise. This week Canada will release GDP for January expected at 1.5% Y/Y. It’s a relatively quiet week for Australian data.
In the Eurozone, apart from a speech from European Central Bank President Draghi on Wednesday, the main economic releases are German CPI expected at 1.5% Y/Y for March and German employment numbers on Friday, with the unemployment rate expected to fall to 4.9%.
Good luck and good trading! Ben Robson
Ben Robson is the CEO of Spectrex Commodities and author of Currency Kings- How Billionaire Traders Made Their Fortune Trading Forex And How You Can Too.
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