FOMC Maintains it Data Dependent Approach

Weekly Report - 26/02/2017

Minutes from February Decision Highlight Rate Hike Willingness if Data Stays the Course



The Federal Reserve struck a more cautious, but upbeat tone during the release of its latest meeting minutes, citing the need to raise rates “fairly soon” if data continues to evolve positive or maintain a stable trajectory over the coming weeks and months in the lead up to the next decision.

Last Week

The major development that dominated financial markets last week apart from the increasing frayed political environment was the FOMC’s latest minutes from the February meeting of policymakers.  While the Open Market Committee would like to see further progress on inflation and employment, there were some upside risks including proposed fiscal measures. The dollar was a little softer to close out the week, pushing gold prices back above $1250 for the first time in months.

Shifting to Europe, headlines centered on the approaching elections in the Netherlands and France.  Fundamental data came in relatively positive, with both services and manufacturing indices expanding faster than anticipated while inflation data met expectations.  In the UK, fourth quarter GDP was revised higher to 0.70% expansion from the 0.60% reported during the advance reading.  Furthermore, Bank of England Governor Carney outlined more optimistic scenarios for Brexit, potentially even bringing about higher rates.  Nevertheless, Europe is striking a more provocative tone towards any exit negotiations, asking for €60 billion in assurances to cover the UK’s outstanding EU commitments.  To cap off the week, US crude oil production hit a new cycle high just above 9.000 million barrels per day as onshore crude stockpiles hit a new record.


The Week Ahead

After a week absent significant economic data, the coming week presents more fundamental opportunities for investors.  The main events will be centered on the US throughout the week, with the second estimate of fourth quarter GDP on deck.  Forecasts are calling for a revision higher to 2.10% annualized expansion during the fourth quarter compared with the 1.90% reported during the advance reading.  Other important US-centric events include data on durable goods orders, a speech from US President Donald Trump, and above all, the Federal Reserve’s preferred inflation gauge.

PCE inflation is due for release on March 1st, with any sustained upside in the figure likely contributing to heightened speculation of a more near-term rate hike from the US Central Bank.  Outside of the US, the Euro Area will be reporting preliminary consumer price figures for the month of February while Japan is set to report official price inflation data for January.  Additional gross domestic product figures are due from Canada and Australia throughout the week.  Also important will be the periodic manufacturing data released throughout the week from China, the UK, US, and Germany.  Further developments in Euro Area political matchups should also be monitored for any outsized activity in bond markets that impacts equity benchmarks.


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