FOMC announce interest rate rise, U.S. Dollar pares early trading session losses, oil slumps, DJIA closes up
The key fundamental economic calendar event of the week, the FOMC (Fed) announcement regarding interest rates, went according to the economists’ forecast and in line with the forward guidance issued by the Fed over recent months; the main interest rate was raised by 0.25% to 1.25%. This is the third rise during the past six months and the second of three rises the Fed had (tentatively) committed to at the start of the year.
The reaction by U.S. Dollar investors was in many ways muted; the interest rate rise was already priced in and as a consequence the announcement only caused a paring of the losses the dollar had experienced versus its major peers earlier in the day. EUR/USD ended the New York session at circa 1.1212, resting on the daily pivot point, after rising to 1.1296 shortly after New York opened, with R3 at 1.1265, being breached. GBP/USD closed the session out at circa 1.2748, off the daily high of 1.1288, up circa 0.1% on the day. USD/JPY ended the New York session at approx. 109.71, recovering after crashing through S3 to a daily low at 108.71, price remaining close to S2 down circa 0.4%.
USA equities experienced a mixed day; DJIA closed up 0.22% and the SPX closed down 0.21%. Looking at other economic calendar news, inflation (CPI) came in at 1.9%, missing forecast of 2% and significantly below the 2.2% recorded in April. This drop may cause the Fed to postpone any further interest rate rise, until much later in the year. Year on year wage growth in the USA for May came in as forecast at 0.6%, whilst advanced retail sales came in at -0.3%, missing the prediction of flat growth and by some distance, from the 0.4% growth recorded in April.
Crude oil inventories only fell to -1661k, far short of predictions, causing WTI oil to collapse by approx. 3.6% on the day, to $44.68 per barrel. WTI is now down 19% in 2017, from a high of $55 a barrel recorded on January 3rd. Having reached a high of $1282 per ounce up 1% (touching R3), shortly after the open in New York, gold gave up all its gains to crash through S1, ending the session close to $1259 per ounce, down 0.7% and at the lowest level for two weeks.
German CPI came in as forecast at 1.5%, employment in the Eurozone has grown by 1.5% YoY, whilst industrial production growth in the single currency bloc came in as predicted, at 1.4% annual growth. The U.K. unemployment claims change for May beat expectations coming in at 7.3k, with a current unemployment rate of 4.6%, however, annual wage growth has fallen to 1.7%, stoking fears that the jobs being created in what’s being regarded as close on full employment, are of consistently poor quality. Moreover, with wages stagnant and in real terms stuck back in the year 2003, stagflation fears for the U.K. are once again being discussed by market analysts and economists.
The main European equities, with the exception of Germany’s DAX, sold off for the second day; STOXX 50 down -0.30%, CAC down -0.35%, UK’s FTSE down 0.35% and the DAX closed up 0.32%.
Economic calendar events for June 15th, all times quoted are London GMT time
01:30, currency impacted AUD. Unemployment Rate (MAY). Australia’s unemployment is forecast to remain unchanged, at 5.7%.
08:30, currency impacted GBP. Retail Sales (YoY) (MAY). Retail sales are predicted to fall to a YoY rate of 1.9%, from 4.5% in April.
09:00, currency impacted EUR. Euro-Zone Trade Balance (euros) (APR). The trade balance is expected to fall to 28.5b, from 30.9b recorded in March.
11:00, currency impacted GBP. Bank of England Rate Decision (JUN 15). There is no expectation for the base interest rate in the U.K. to rise above the current rate of 0.25%.
11:00, currency impacted GBP. BOE Asset Purchase Target (JUN). The current QE programme is expected to remain unchanged, at £435b.
12:30, currency impacted USD. Initial Jobless Claims (JUN 10). Weekly unemployment claims are forecast to drop to 241k, from the 245k recorded last week.
13:00, currency impacted CAD. Existing Home Sales (MoM) (MAY). Canadian home sales are forecast to improve, from the negative reading of -1.70% recorded in April.
13:15, currency impacted USD. Industrial Production (MAY). USA industrial production is excepted to fall to 0.2%, from the 1.0% growth recorded in April.
20:00, currency impacted GBP. BOE Governor Mark Carney Speaks at Mansion House in London. With Brexit beginning after the article 50 was invoked, combined with a hung parliament, the BoE Governor’s speech will be closely observed.