Fed hints at a December rate rise, sending USA stocks sliding, U.S. dollar falls as persistent low inflation concerns by the Fed, signals a dovish monetary policy for 2018
The minutes of the FOMC November meeting were published on Wednesday evening, revealing that an interest rate rise is imminent, however, the minutes also struck a dovish tone, with the various Fed chairs indicating their inflation fears, suggesting that rate rises in 2018 may not be as aggressive as previously predicted. As a consequence of the FOMC narrative, the U.S. dollar sold off sharply, printing losses versus all of its peers; falling by circa 1% versus the euro and falling by a similar amount versus yen, reaching an eight week low versus Japan’s currency. The Swiss franc, yen and gold restored their safe haven appeal as risk off appeared.
U.S. equities also sold off, naturally interest rate rises encourages a rotation out of stocks. If the key interest rate was to normalize to circa 3% in 2018, corps wouldn’t be able to borrow as cheaply, to engage in share buy backs, to cause a scarcity in their stock, thereby inflating price. Share buy backs, from 2010 onwards and Trump’s tax cut promise at the beginning of his presidency, have proved to be the overwhelming reason equity prices have risen exponentially over recent years, not improved earnings.
The DJIA and SPX all sold off, whilst gold (XAU/USD) recovered all its recent lost ground, rising by circa 1%, to break through the 1290 level and reaching an intraday high of 1294, a level not witnessed since November 19th. Commodities continued their recent rise, WTI oil closing the day out up circa 2%, breaching the $58.00 handle. In USA economic calendar news, the durable goods orders metric shocked analysts, by coming in negative at -1.2% for October, missing the 0.3% forecast, whilst continuous unemployment claims rose, despite initial jobless claimants falling consistently over recent weeks/months.
The U.K. chancellor Hammond delivered his second budget statement in Parliament on Wednesday, the grandstanding announcement in the budget was continued support for first time home buyers, a transparent and political move designed to keep house prices high and to buy votes. The gloomy statement confirmed that the government economists believe: GDP growth will fall every year until approx. 2020-2021, the deficit will peak in 2018-2019 and the deficit will not be eradicated until (at best) 2025, eleven years after the initial Tory commitment. More cash was promised for the chaos of Brexit. Naturally the U.K. mainstream media generally applauded Hammond’s prudence. The U.K. FTSE 100 closed up by 0.10%, whilst the pound fell versus all of its main peers, with the exception of the U.S. dollar.
European economic calendar news was practically nonexistent, with the exception of the latest Eurozone consumer confidence reading, coming in at 0.1% for November, rising from the negative reading in October, of -1.1%. Germany’s political situation once again spooked investors after receding from general financial media discussion on Tuesday, the DAX slumped by circa 1.16% on the day. The euro crosses fell, with the exception of EUR/GBP, whilst EUR/USD rose by circa 1% on the day.
USD/JPY traded in a wide bearish range throughout the trading sessions on Wednesday, eventually crashing through S3 to end the day down over 1%, at 111.2. USD/CHF followed a similar pattern, crashing through S3, to end the day at circa 0.981 and reaching a low not seen since October 25th, whilst falling close to the critical 200 DMA. USD/CAD fell through S2, ending the day down circa 0.6%, at 1.270.
GBP/USD whipsawed through a wide range on Wednesday, initially falling through S1, as the U.K. chancellor took to the ballot box to deliver his budget statement. But due to dollar weakness across the board, the major currency pair then recovered to reverse direction, eventually crashing upwards through R2, closing the day out up circa 0.7% at 1.331, the highest level posted in November. All sterling crosses ended the day either flat or down; GBP/JPY falling through S2 down circa 0.6%, GBP/CHF closing out down circa 0.5%.
EUR/GBP whipsawed through a tight range on Wednesday, making two attempts to break through R1, eventually ending the day up circa 0.1% at 0.887. Versus all its other currency crosses the euro fell, falling the most versus the Swissie; EUR/CHF ending the day down circa 0.5% at 1.159. EUR/USD breached R3, ending the day up circa 1% at 1.181, rising above the 100 DMA, a moving average level that the major currency pair has struggled to maintain over recent days.
EQUITIES SNAPSHOT FOR NOVEMBER 22nd.
• DJIA closed down 0.27%.
• SPX closed down 0.08%.
• FTSE 100 closed up 0.10%.
• DAX closed down 1.16%.
• CAC closed down 0.25%.
KEY ECONOMIC CALENDAR EVENTS FOR NOVEMBER 23rd.
• EUR German Gross Domestic Product w.d.a. (YoY) (3Q F).
• EUR German Exports (3Q).
• EUR Markit Eurozone Composite PMI (NOV P).
• GBP Gross Domestic Product (QoQ) (3Q P).
• GBP Gross Domestic Product (YoY) (3Q P).
• GBP Exports (3Q P).
• GBP Total Business Investment (YoY) (3Q P).
• EUR ECB account of the monetary policy meeting.
• CHF SNB’s Thomas Jordan Speaks in Basel.
• NZD Trade Balance 12 Mth YTD (OCT).