(March 14, 2017) Another flat start to the day for the markets going into the European session.
There have been very few drivers at the start of the week to incentivise the markets ahead of tomorrow’s FOMC interest rate decision and, more importantly, economic projections.
The material shift in FOMC member sentiment towards policy was particularly telling ahead of the blackout period and the hawkish commentary certainly suggests that the FOMC will be looking to make upward revisions to the December projections, the only material question being whether there will be a steepening in the rate path.
Before the week of the hawks, the markets had largely priced in a 2-rate hike year for the FED, but with economic indicators on the positive side and with inflation beginning to show signs of a final push towards the FED’s 2% target, there will be plenty for FOMC members to consider when making the projections for this year and next.
The one thing that has yet to change is the fact that the U.S administration has yet to deliver on campaign pledges, the lack of details on tax reforms and a fiscal stimulus package likely to have as much to do with the Dollar being pegged back than the markets selling on the fact…
It’s another quiet one on the macroeconomic front, with key stats out of Europe limited to the Eurozone’s January Industrial Production and Germany and the Eurozone’s ZEW Economic Sentiment figures for March, which will provide the EUR with some support through the early part of the European session, should stats be in line with or better than forecast. Any gains are likely to be minor however, with the markets torn between the upbeat economic sentiment and concerns over the Dutch election tomorrow. Election fever is building and the populist parties are still in with a chance.
Over in the Netherlands, it’s the day before Election Day, the latest scuffle with Turkey having provided Wilders with a likely boost, though he will need to be able to form a coalition, not just win a majority and doubts remain over which parties will be willing to join forces.
Stats out of the U.S are limited to February’s producer price index figures scheduled for release this afternoon, which are unlikely to cause any material shock and are certainly not expected to lead the markets to reconsider tomorrow’s anticipated rate hike, suggesting that the numbers will have marginal impact at best, the Dollar managing to stand its ground for now.
Across the Pond
While the markets have been largely on the side lines ahead of tomorrow’s FOMC, the pound has remained in the spotlight, with concerns over Brexit and news of the Scottish government calling for a Scottish Independence Referendum a blow for the British government and the pound.
There was some good news late in the day on Monday, with the House of Lords backing down as had been expected, but the prospects of a referendum in Scotland at a time when the British government will be negotiating Britain’s departure from the EU creates the additional uncertainty that the markets and businesses alike, were perhaps looking to avoid.
A lack of material stats out of the UK today will leave the markets focused on any news hitting the wires over Brexit, the government having already announced that it will delay invoking Article 50 until week, and Thursday’s BoE monetary policy decision. The recent deterioration in the UK economy looks to have removed any prospects of a rate hike over the near-term, the only surprise possibly being talk of the need for further easing, the confusion over the BoE’s neutral position adding to the volatility in the pound.
At the time of the report, cable has slumped 0.66% to $1.21381 with any claw back through the day unlikely. The EUR is down 0.07% against the Dollar as the day is likely to belong to the Dollar ahead of tomorrow’s inflation and retail sales figures out of the U.S, the Dollar Spot Index up 0.22%, with Brexit and elections likely to continue weighing on both the Pound and the EUR through the day.