FTSE -4 points at 7470 DAX -8 points at 12797 CAC -26 points at 5238 Euro Stoxx -6 points at 3541
As expected and widely priced in by the markets, the Federal Reserve (Fed) raised the interest rates by 25 basis points. The FOMC hinted at another rate hike before the end of this year, three more rate hikes in the course of next year and gave advance warnings on the upcoming balance sheet normalisation. The U.S. 10-Year yields nosedived to 2.10%, fresh low since November presidential election.
The Hong Kong Monetary Authority (HKMA) rose the base rate to 1.50% in tandem with the Fed, stated that it could take new measures, when necessary, if the property market risk continues and warned the potential homebuyers about the rising risks on the mortgage rates. The People's Bank of China (PBoC) stayed still.
Hang Seng wrote off 1.03%, as the Hong Kong banks erased 1.07%. HSBC traded by 1%. Under the current circumstances, the HK banks are set to raise their rates gradually, meanwhile they expect certain capital outflows due to arbitrage.
The US dollar depreciated on a typical buy-the-rumour-sell-the-fact reaction on no hawkish surprise out of the FOMC meeting. The US headline and core inflation eased for the fourth straight month in May and the retail sales dropped by 0.3% month-on-month. Nonetheless, the recent weakness in the US inflation figures were interpreted as one-off by Janet Yellen, due to the reductions in wireless plans and lower medication costs.
The USD/JPY plunged to 108.81. The EUR/USD hit 1.1295 and the GBP/USD advanced to 1.2825, yet no major technical levels were breached.
The reaction in the US stock markets was mixed. The Dow Jones ended the session 0.22% higher, while the S&P 500 and the NASDAQ closed 0.10% and 0.41% lower respectively.
In the aftermath of the market reaction to the Fed decision, we expect the knee-jerk sell-off in the US dollar to cool down. Although the Fed has not surprised by a hawkish comment or action, the US monetary policy normalisation is happening. On the other side of the table, the Bank of Japan and the European Central Bank continue sending accommodative messages to the markets.
In Europe, the DAX (+0.32%) renewed record on Wednesday’s session, while the CAC (-0.35%) and the FTSE 100 (-0.35%) closed the session on the back foot.
The FTSE will likely start the session under pressure due to stronger pound and weaker oil prices. The price of WTI crude slipped below the $45/barrel, as the US crude inventories contracted by 1.7 million barrels last week, less than 2.3 million contraction anticipated by analysts.
The Bank of England (BoE) meets today and is expected to maintain the status quo. The BoE’s task is hard and the decision is delicate. The BoE is willing to keep the loose monetary conditions to give support to the British economy through the Brexit period. Yet unfortunately, the rising inflationary pressures have become a severe threat to the BoE’s mid-term outlook. The headline inflation in May hit 2.9% year-on-year, the core inflation advanced to 2.6%.
The BoE will likely rely on the slowdown in wages growth as a foremost argument to stay pat. The MPC is expected to vote 7-0-1 in favour of the status quo. Any hawkish shift should revive the BoE-hawks and bring the $1.30 level in GBP/USD back on the radar.
In Australia, the solid jobs data gave an additional push to the Aussie. The AUD/USD advanced to 0.7635 on the Fed trade and consolidated gains in Sydney as the unemployment rate unexpectedly fell to 5.5% in May from 5.7% printed a month earlier. The Australian economy added 52,100 full-time jobs, versus 10,100 part-time job losses. Solid fundamental data, combined to advantageous carry opportunities due to low US yields may encourage a further rise toward the mid-term support, 0.7750/0.7800.
Gold spiked to $1,280 following the Fed decision, then eased to $1,260/$1,266 in Asia. The yellow metal is rangebound between $1,254/$1,276 area. A negative breakout could extend to $1’245 (major 61.8% retrace on May-June rise & 100-day moving average) and $1,240 (200-day moving average). A positive breakout should encourage consolidation near the $1,280 level, before a further rise toward $1,295/1,300 mid-term resistance.
Quick glance at technicals on LCG Trader:
GBP/USD intraday: upside prevails. Long positions above 1.2720 (pivot) with targets at 1.2780 & 1.2815 in extension. Below 1.2720, downside potential to 1.2680 & 1.2635.
EUR/USD intraday: under pressure. Short positions below 1.1250 (pivot) with targets at 1.1195 & 1.1180 in extension. Above 1.1250, upside potential to 1.1280 & 1.1300.
Crude oil (WTI) (N7) intraday: key resistance at 45.20. Short positions below 45.20 (pivot) with targets at 44.15 & 43.75 in extension. Above 45.20, upside potential to 45.50& 45.80.