Fed speakers calm markets
Yesterday was a lot quieter than Friday’s bunfight, with bonds, stocks and currencies all taking a breather from the post-Fed fallout. Speeches and comments from Fed members Williams, Lockhart and Bullard since the Fed decision to hold rates on Thursday have done enough to quell markets and bring back belief that we’ll see a Federal Reserve rate increase in 2015.
Comments from Williams and Lockhart look to have deemed the October meeting as not live for an interest rate increase as there is too little data to be released between now and then. Our opinion and that of the market remains that an increase will come in December.
The question elsewhere
Dollar strength has emerged from this chatter as well as from traders anticipating further dovish noises from the Bank of Japan, European Central Bank, Swiss National Bank and the Reserve Bank of Australia at their various upcoming meetings. Noises from China continue to play down the likelihood of a hard landing for the country’s economy and the subsequent pressure that it will put on global output.
Draghi’s quarterly speech to the European Parliament tomorrow is being hailed as a major risk for the euro. Draghi was dovish at the ECB’s September meeting and the dovish turn of the Federal Reserve on Thursday will have done nothing for him and the ECB’s desire to pressurise a lower euro. Belief that his speech may include some hints and nods towards an expansion or extension of the ECB’s asset purchase plan is taking the single currency lower this morning and will likely do so into his speech at 2pm BST.
In the short term, markets seem happy to continue to bet that the commodity currencies such as AUD, CAD and NZD will continue to fall as domestic weakness from the pull lower in commodities impacts their respective economies.
Pound happy to sit and wait
Sterling has remained rather quiet so far this week and we expect that to continue through the remainder of the week. Osborne banging the drum for investment in China is an obvious positive in the longer term for the UK economy but cues in the near-term are still being taken from monetary moves. Despite Carney’s most recent hawkish comments and last week’s explosive wage numbers, analysts still seem happy to call a rate hike in Q2 of next year given the dovishness elsewhere and global market wobbles.
The day ahead
The data calendar is rather quiet today but movements in Asian emerging markets overnight have been known to lap over into G10 markets.