As expected the Fed raised interest rates by 25bps this morning and more crucially signaled that there are another 2 on the way, most probably in September and December. A hawkish Fed Chair Jerome Powell advised that the US economy is in great shape but the FOMC is still concerned about the slow wage gain rates. The market reacted initially as expected with the dollar charging higher, bonds dropping off, the US 10-Year yield jumped through 3% again and the US stock markets finishing the day in the red.
In the pattern of recent times, geopolitical factors came in to temper the impact of fundamentals. The US announced that it’s preparing to implement tariffs on Chinese goods as early as tomorrow and this of course led to the now normal escalation of fears for an impending trade war – with President Trump confirming that he may upset China in the coming weeks. However, the market is far from panicking as we’ve now seen this pattern a few times and investors will once again find themselves glued to the newswires for details of what is really being implemented.
The non-stop week continues today with more tier 1 data and central bank action. In the Asian session traders will be looking at the Australian job numbers with employment numbers expected at just under 20k and the unemployment rate dropping back to 5.5% - this is followed swiftly by the Chinese Industrial Production and Fixed Asset Investment numbers.
The main event of the day will come in the London session, first up we have the UK Retail Sales data but the focus will swiftly move to the ECB meeting conclusion. Once again we’re not expecting anything on the headline rate but investors will be closely monitoring the press conference for if there is a decision on when they will end QE. We have the small matter of US Retail Sales numbers being released at the same time as the press conference so there could be some excessive volatility in the euro at this time.