Following the meeting on December 12-13, the AHC Committee on Open Markets (FOMC) hiked, as expected, the federal funds rate by 0.25%, while keeping the forecast for 2018 unchanged. The moderate tone of the accompanying statement led to the fact that players preferred to lock in profits. At a subsequent press conference, Janet Yellen also tried to avoid hawkish language.
Thus, as the market expected, another 3 rate increases are planned for 2018, the CME futures market implies a 45% likelihood that the next step will take place in March. The forecast for GDP growth rates from 2.1% to 2.5% in 2018 has significantly increased, and the unemployment rate has been reduced from 4.1% to 3.9%. These two positive factors are crossed out by the invariability of the inflation forecast. According to the Fed, it will be 1.9% next year, as in the September release.
Apparently, the Fed hoped that unnecessary volatility in the markets would not take place, this goal was achieved. The dollar index fell back slightly as part of the profit-taking, but we still do not expect a full-fledged reversal.
Before the key ECB meeting on monetary policy, the eurozone economy continues to please investors with excellent indicators.
The ZEW index of current economic conditions in Germany increased in December to 89.3p, the best result since July 2011. Economic sentiment in the euro area, despite the decline from 30.9p to 29.0p, continues to remain near two-year highs.
Industrial production grew by -.2% in December, and a year-on-year growth of 3.7%, both results exceeded the forecast.
The ECB meeting, which was held on Thursday, is regarded by the market as a gateway. The objectives of the asset redemption program are determined before the end of 2018, low inflation in the eurozone does not provide any reason to expect a rise in rates. The main intrigue is the answer to the question – will the ECB support the growth of the euro? This can be facilitated by the revision of macroeconomic forecasts towards improvement, for which there are all grounds.
The mood is quite complacent, investors do not assume that Draghi is capable of hawkish comments following the meeting, and the euro will be stable, but a slight increase to 1.19 is not ruled out.
The Bank of England ahead of its meeting is in a more difficult position than the ECB – against a background of relatively weak growth of the economy, a number of indicators that are growing, implying an increase in price pressure.
The index of retail prices rose in November to 3.9%, house prices, according to DCLG, to 4.5% year-on-year, producer prices are rising. Consumer prices in November increased by 0.3%, year-on-year growth is already 3.1%, and this is a peak since April 2012.
The average salary, taking into account premiums, rose by 2.5% in October for the last 3 months, and this is a 10-month peak.
The general price dynamics indicates that growth will continue, which means that the Bank of England may need to raise rates again. While the market proceeds from the fact that the first increase in many years in November was one-time, it can also reconsider its position, given that the trend does not change.
However, the strong movement of the pound in any case should not wait. The meeting is a passing one, as it is not accompanied by the release of updated macroeconomic data. The pound, most likely, will remain stable at the end of the day.
Oil received a fairly sensitive blow on Wednesday after the publication of the EIA report. However, the fall was not deep, for Brent at least from December 6 as it resisted, and now a local base is being formed. The reasons for a deep correction are few, for growth much more. We expect that the bulls will make a new attempt to raise quotes above $66/bbl, which will be facilitated by a temporary weakening of the dollar.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
Performed by Kuvat Raharjo,
InstaForex Group © 2007-2017
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