FOMC Opens the Door

Weekly Report - 25/05/2015


After much waiting, the Federal Reserve looks poised to raise interest rates in one of the upcoming FOMC Meetings after the latest meeting minutes showed many members in favor of raising rates. Although the Central Bank did not rule out the possibility of hiking interest rates in June, it is more likely to be pushed back towards September, even after Federal Reserve Chair Janet Yellen confirmed that liftoff would occur in 2015.

Last Week

The FOMC Meeting Minutes were the most widely watched piece of economic news last week aside from the speech by Federal Reserve Chair Janet Yellen. Although there is no clear timeline for rate increases to be realized, there is strong conviction on the part of Fed members that 2015 will be the year of increase. In her remarks, Yellen mentioned that the “soft first quarter... largely [the] result of transitory factors” and “we are not there yet on [the] Fed’s employment goals.” The dollar rebounded moderately after several weeks of decline, helped by the weakness in the Euro. Despite the Euro common currency narrowly averting deflation, manufacturing in core nation Germany continues to decelerate as evidenced by the latest PMI. The UK was not so fortunate when it came to inflation, with annualized CPI slipping into deflationary territory alongside the comparable US measure. Other important data points included the massive -6.10% contraction in Chinese home prices year over year as the HSBC Manufacturing PMI remained in contractionary territory. One bright spot was annualized Japanese GDP which expanded at a 2.40% pace according to preliminary figures versus expectations of 1.10%.


The Week Ahead

Many markets will be closed on Monday for Memorial Day in the United States and a banking holiday across the Atlantic in the United Kingdom. Important upcoming events in the week ahead include GDP readings from the UK and US respectively. The UK is forecast to show an increased pace of expansion, with estimates of 2.50% annualized expansion and 0.40% quarterly growth. The second reading of US first quarter GDP is expected to be revised substantially lower, falling from an initial 0.20% to -0.80% contraction. Other important US centric events in the coming week include durable goods orders which are expected to show that the core figure reversed higher while the regular durable goods fell by -0.40%. Housing data will also be front and center with new homes sales, pending home sales, and the S&P Case Shiller Home Price Index due to be released. Other important upcoming events of interest include a Canadian interest rate decision and quarterly GDP figures. Expectations are for the key rate to remain on hold at 0.75% while GDP could slip on the weakness in energy prices.


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