Morning Call from FXCC

Fed officials state that a USA interest rate rise is imminent, according to the published minutes.

Feb 23 • Morning Roll Call • 6935 Views • Comments Off on Fed officials state that a USA interest rate rise is imminent, according to the published minutes.

The latest Fed minutes, from the meeting held January 31st to February 1st, were published on Wednesday evening. It’s important were critical issues such as this are concerned, to not embellish, or to mistranslate the meaning. Therefore we’ll quote the Fed minutes verbatim;

“Many participants expressed the view that it might be appropriate to raise the federal funds rate again fairly soon if incoming information on the labor market and inflation was in line with, or stronger than their current expectations, or if the risks of overshooting the committee’s maximum-employment and inflation objectives increased.”

The reaction in USA equity markets to the FOMC (Fed) minutes was fairly muted; the SPX fell by 0.1% to 2,362, whilst the DJIA posted a new record high, up by 0.16% at 20,775.

The other key fundamental news emanating from the USA concerned house sales and mortgage applications, which indicated quite an interesting divergence. Mortgage applications have (once again) fallen sharply, but house sales and prices have risen. Existing home sales were up by 3.3% in the month of January, whilst mortgage applications have fallen by -2%, following a -3.2% fall in the previous set of data. The conclusion drawn is that the USA housing market is enjoying a renaissance of activity amongst cash buyers, perhaps the industry of ‘flipping’ real estate has been reborn in the States? In other ‘North American’ news Canada saw a fall of -0.5% in retail sales, missing the forecast of zero growth. It’s too early to draw any conclusions from the Canadian retail figures, but similar to the USA and parts of Europe, the impression is that the consumer may be spent up.

In the UK the latest GDP figures were released on Wednesday indicating that in the last quarter of 2016 the economy grew by 0.7%, however, annual growth slipped back to 2% and the UK’s economy is only 1.8% above its growth peak of 2008. Exports were (provisionally) up in the 4th quarter by a significant 4.1%, with imports down by 0.4%. More worryingly for the UK, business investment actually fell by -0.9% in the last quarter of 2016 and was down -1% annually. In the Eurozone CPI inflation was reported as 1.8% annually.

The Dollar Spot Index fell 0.2% on Wednesday. USD/JPY fell by circa 0.5% to 113.29 towards the day’s finish. EUR/USD rose by approximately 0.3% to $1.0555, recovering from an initial six-week low previously in the session, whilst GBP/USD gave up its earlier session gains, falling by approx. 0.1% to $1.2456.

WTI oil fell due to forecasts of further expansion in U.S.A. crude stockpiles, whilst OPEC potentially extending production cuts (beyond the agreed period), is also back on the agenda. WTI fell by circa 1.5% to settle at $53.46 a barrel. Spot gold erased most of its earlier trading session declines after the Fed minutes, to finish the day little changed at circa $1,237.6 an ounce in New York.

Fundamental economic calendar events for February 23rd, all times quoted are London (GMT) times.

07:00, currency effected EUR. German Gross Domestic Product w.d.a. (YoY). The forecast is for Germany’s annual GDP figure to have remained constant at 1.7%.

07:00, currency effected EUR. German GfK Consumer Confidence Survey. The prediction is for this respected sentiment data to have fallen marginally to 10.1, from the previous reading of 10.2.

13:30, currency effected USD. Initial Jobless Claims (FEB 18th). The prediction is for a small rise in weekly unemployment claims to 240k, from the 239k previously.

14:00, currency effected USD. House Price Index (MoM) (DEC). The prediction is for a monthly rise of 0.5% in USA house prices.

16:00, currency effected USD. DOE U.S. Crude Oil Inventories (FEB 17th). This report will be monitored carefully given the current range both WTI and Brent crude finds itself in. The previous reading was 9527k.


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