Morning Commentary: Is the Fed Approaching an End Game?
Get link
Facebook
Twitter
Pinterest
Email
Other Apps
A daily summary and commentary of events and factors that affect the global markets, with a particular emphasis on the foreign exchange markets.
Is the Fed Approaching an End Game?
Share this story:
Alan Rose Foreign Exchange Head Trader
As we enter this holiday shortened week, markets are generally subdued and foreign exchange markets are mixed. There is a lack of prime first tier economic data this week and the markets will continue to react to last week's prime market moving news. Here are some of the key stories and questions that the markets are following:
The market will continue to focus on the status of both the Brexit negotiations and the standing of PM Theresa May within her Tory party with the possibility of a vote of no confidence.
The collapse of the price of oil which saw 12 straight days of decline before finally stabilizing and the implications for energy and commodity linked currencies.
Is the Fed in the process of shifting gears and reevaluating its monetary policy forecast for continued interest rate hikes into 2019?
Late last week, Fed Vice Chairman Richard Clarida made comments that surprised the market by stating that “we are close to neutral” implying that the Fed was closer to the end game of this rising interest rate cycle going back to 2015. Less than a month ago, Fed Chairman Powell spoke and said that the Fed was “a long way from neutral” and the markets have interpreted the Vice Chairman’s recent comments as a correction of Chairman Powell’s apparent misstep.
Market are always looking forward and the Fed Funds future market has moved significantly. Clarida's comments combined with recent continued stock market volatility and turmoil are changing the expectations of future Fed rate increases. The December 2020 contract barely suggests 50 bp of tightening inclusive of a 25 bps hike in December. This represents a significant downgrade from what was thought to be at least two to three more rate increases next year and is part of the explanation for why the U.S. dollar has fallen for five straight sessions.
Interest rate projections and interest rate differentials are critically important for almost all asset classes but in particular for the value of the U.S. dollar. How events unfold over the next weeks and months regarding Brexit, U.S. – China trade, and the future course of U.S. interest rate will play a key part in impacting how investors and traders will determine the value of equities, commodity prices, and the U.S. dollar.
Want to learn more about international finance, economics, and global events? Sign up for our other Foreign Exchange emails and videos!
Follow City National Bank on social media:
Investment and Insurance Products:
•
Are Not insured by the FDIC or any other federal government agency
•
Are Not deposits of or guaranteed by a Bank or any Bank Affiliate
•
May Lose Value
This report is for general information and education only and was compiled from data and sources believed to be reliable. City National Bank does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors as of the date of the report with no obligation to update or notify of inaccuracy or change. This report is not a recommendation or an offer or solicitation to buy or sell any financial instrument discussed. It is not specific investment advice. Financial instruments discussed may not be suitable for the reader. Readers must make independent investment decisions based on their own investment objectives and financial situations. Prices and financial instruments discussed are subject to change without notice. Instruments denominated in a foreign currency are subject to exchange rate and other risks. The Bank (and its clients or associated persons) may engage in transactions inconsistent with this report and may buy from or sell to clients or others the financial instruments discussed on a principal basis. Past performance is not an indication of future results. This report may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting.
View this email in your browser Want to watch a recording of yesterday's Simply Successful Investing Webinar. Just click here and use passcode 5q59Z&3M.
Tune in for a guide to ETFs and investing strategies for potential long-term success. View in a browser Fidelity Fidelity Log in Creating a portfolio with ETFs: Why and how Creating a portfolio with ETFs: Why and how
Comments
Post a Comment