Federal Reserve Signals its March Intentions

Daily Analysis - 05/03/2017

Likelihood of Action at Upcoming FOMC a Near Certainty

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Comments from Federal Reserve Chair Janet Yellen on Friday offered the clearest indications yet that the Open Market Committee will opt to raise rates during the approaching decision if the data continues to evolve as projected by the Central Bank.

Last Week


Rate hike speculation topped the agenda last week for financial markets after a number of prominent Federal Reserve officials including Chairwoman Janet Yellen took a more hawkish stance towards the gradual approach to tightening policy.  After numerous suggestions that the end of the era of easy monetary policy and low interest rates was fast approaching, tools that track the probability of a 0.25% increase in the benchmark like the CME Group’s FedWatch tool priced-in a 79.70% likelihood of action as of Friday.

The PCE report was of key importance, as it showed inflation continuing to trend higher towards the Fed’s preferred 2.00% target, helping build the rate hike case.  However, GDP missed forecasts of a revision higher, remaining stable compared to the first estimates.  In Canada, despite a modest deceleration, GDP managed to remain in positive territory as the Bank of Canada kept policy on hold, leaving interest rates at 0.50%.  The remainder of the week’s events centered predominantly on manufacturing PMI’s reported from across the globe, with nearly all in North America, Europe, and Asia manufacturing activity remaining in expansionary territory.  Nevertheless, an abundance of political headwinds emerged, especially after Scotland raised the prospect of another referendum to remain a part of the UK.

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The Week Ahead


With March already in full swing, the upcoming sessions will be filled with fundamental announcements from across the globe, beginning in the east as the Reserve Bank of Australia makes a monetary policy decision.  The RBA is largely expected to keep the benchmark interest rate on hold at 1.50%, especially after the pickup in GDP reported last week.  Aside from the RBA, the European Central Bank is also set to report its own interest rate decision, with no significant changes to policy anticipated especially in light of asset purchase tapering set to commence in April.  Aside from the ECB, Eurostat will be releasing the final reading of fourth quarter gross domestic product, with expectations that the figure will match earlier estimates of 0.40% quarterly expansion and 1.70% annualized expansion.

Comparable Japanese figures are also due, with forecasts calling for a 1.60% pace of growth year over year while quarterly activity reaches 0.40%.  Remaining in Asia, trade data will be delivered from China, with import and export growth expected to surge despite the rising likelihood of the surplus halving.  To cap off the week, the US will announce nonfarm payrolls on Friday along with the unemployment rate which is projected to fall to 4.70% from 4.80%.

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