FOMC Minutes and Interest Rate Hikes

Daily Analysis - 21/02/2018

All eyes on FOMC Meeting


The Focus turns on the FOMC minutes as hints on the future pace of interest rate hikes could impact the US Dollar Forex pairs as well as the Stock Markets.

FOMC Minutes Could Boost the Greenback

The US Dollar edged higher on Wednesday as the focus turned to the minutes of the Federal Reserve’s last policy meeting for hints on the future pace of U.S. monetary tightening.

The two main reasons underlying recent stock market volatility have been a spike in wage growth and expectations that the Federal Reserve may raise interest rates more rapidly than anticipated this year as higher growth rate of inflation could be expected in the near future. This week’s release of minutes from the Fed’s January 30-31 meeting could shed more light on Fed policymakers’ outlook.

The dollar index rose 0.1% to 89.805, which was up about 1.8% from Friday’s three-year low of 88.251.

The U.S. currency has weakened against the yen and other major currencies in recent months. Even with the positive outlook from rising U.S. interest rates, bearish factors offset the strength of the greenback including worries that the United States could pursue a weaker dollar policy. The U.S. budget deficit could surge to more than $1 trillion in 2019 on large government spending and large corporate tax cuts which have undermined the greenback’s performance.

Later today, investors will turn their attention to the minutes released by the U.S. Federal Reserve, the last policy meeting of Janet Yellen as a Fed chair. A more aggressive tone to the minutes could prompt markets to price in the risk of faster U.S. interest rate hikes and help lift the dollar further away from the 3-year lows experienced last week.


The Dow ends lower 250 points

As the markets resumed from Monday’s Holiday, the Dow Jones futures fell sharply Tuesday, pressured by a steep decline in Walmart shares and a rise in interest rates.

The 30-stock index ended 254 points lower, with shares of Walmart losing more than 10%, retailer’s worst day since January 1988. Walmart reported quarterly earnings of $1.33 per share, missing the consensus of $1.37. The company also reported a 23% decline in e-commerce revenue.

Meanwhile, Home Depot released quarterly results that exceeded analyst expectations, lifting the Dow component by 0.4%.

A rise in interest rates toward multiyear highs also pressured stocks. The benchmark 10-year U.S. note yield rose to 2.9%, after hitting its highest level since 2014 last week. The S&P 500 pulled back 0.58% while the NASDAQ fell 0.07% as a rally in tech stocks evaporated in afternoon trading.

The S&P 500 dropped 10.2% entering correction territory between January 26 and February 8, losing $2.5 trillion in value, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. As of Friday's close, the broad index had regained $1.3 trillion. Last week, the S&P 500 ended its best since 2013. The benefits from fiscal stimulus might ultimately outweigh higher rates and the bull market could continue.


HP Inc. reports Earnings

HP Inc. (HPQ), one of the leading global providers of computing and imaging solutions and services for business and home, will report earnings after the bell on Thursday February 22nd for the fiscal quarter ending January 2018. The earnings per share (EPS) forecast for the quarter is $0.42.

In the case HP Inc. meets consensus, it will reflect a 10.5% growth from a year ago when it closed the first quarter of fiscal 2017. The reported EPS for the same quarter last year was $0.38 and dividend at 35% rate of earnings.

Hewlett-Packard Company is a provider of products, technologies, software, solutions & services to individual consumers, small- and medium-sized businesses and large enterprises, including customers in the government, health and education sectors.

HP Inc. has a market capitalization of $35.21 billion and the 52-week range is from $15.93 to $24.10 per share.

On November 1st of 2015, Hewlett-Packard split the PC and printer business from its enterprise products and services business. Since then, there are two publicly traded companies: HP Inc. (HPQ) and Hewlett Packard Enterprise (HPE).

Analysts' estimates for first three months of fiscal 2018 are on quarterly revenue of $13.48 billion, a 6.3% increase on a year over year basis.

According to analysts, the revenue of HP’s PC and computer business is expected to progress to $54.05 billion in full fiscal 2018, which will be a 3.8% development from the actual figure of full fiscal 2017.


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