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FOMC Mum on Future Rate Hikes

Daily Analysis - 02/02/2017

US Federal Reserve Keeps Key Rate on Hold

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The dollar remained under significant pressure on Wednesday following an FOMC statement with no mention of the future for interest rate policy in the United States.  While decidedly more upbeat on business and consumer sentiment, markets are now only projecting two rate hikes before the end of the year.

Fed Holds Firm on Rates


In a move that matched consensus estimates, the conclusion of the two-day FOMC Meeting resulted in no changes to US monetary policy.  The Federal Reserve opted to leave interest rates on hold at 0.75% without mention of whether there will be a rate considered during the March meeting.

Market gauges of the outlook for interest rates are currently showing a very low likelihood of any action at the upcoming meeting, especially after the Fed concluded during its latest statement that inflation remains low.  While the Federal Reserve did sound a more upbeat note on the outlook for inflation, saying it “will” rise to 2.00% over the medium-term, financial markets are now only anticipating two rates hikes during the calendar year instead of the three proposed by the Fed.  The nosedive in the dollar kept precious metals propped up, with silver erasing earlier session losses on Wednesday to close mostly flat.

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Crude Oil Inventories Rise Most Since October


The crude oil glut that has prevailed over the last two years is showing no signs of easing as evidenced by the latest data published by the US Energy Information Administration.  According to the weekly report, 6.466 million barrels were added to stockpiles last week, smashing forecasts of a 3.289 million barrel build and significantly above the 2.840 million barrel increase recorded a week earlier.  While production fell modestly, coming in at 8.915 million barrels per day versus the prior figure of 8.961 million barrels per day, the rising crude oil rig count is likely to add to upside pressure on output over the medium-term.

The more concerning development has been the build in gasoline inventories, with East Coast stockpiles reaching a record 83.540 million barrels.  Despite rising crude in storage, oil prices finished the session on a positive note, with Brent closing back above $56.00 per barrel.

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House of Commons Approves Brexit


In a widely expected development, the UK House of Commons voted to approve the triggering of Article 50 of the Lisbon Treaty necessary to begin Brexit negotiations.  Although the added hurdle did create some optimism amongst the voters hoping to keep the UK as a member of the European Union, the House of Commons passed the bill by a wide margin of 498 votes in favor of Brexit compared to 114 votes for remain.

The last remaining challenge that lies ahead is the vote due from the House of Lords which has already made its opposition to the measures well known, however, the government still believes it is on track to meet the March 31st deadline it has imposed to begin the two-year talks to exit the European Union.  The Pound responded positively, with GBPUSD extending earlier gains before encountering resistance.

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Facebook User Growth Tops Estimates


With earnings season in full swing, social media giant Facebook reported results on Wednesday, crushing analyst expectations while the user base continued to show blistering growth.  Earnings per share came in at $1.44 per share, increasing 78.00% over levels recorded a year earlier while for the fiscal year, user growth totaled 269 million monthly active users.  This brings the total monthly subscribers to 1.86 billion people, with the vast majority of these users also very active on mobile devices.

Considering mobile users accounting for over 80.00% of total advertising revenues, this statistic is very important for understanding the company’s top line momentum, with user base growth providing the impetus for further upside in share prices.  The resulting surge in Facebook stock put the valuation in new record territory, with shares reaching as a high as $133.50 before pulling back modestly.

 

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