Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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Waiting on the Fed
Michael O’Neill
FX Trader, Loonieviews.net
Summary: Tepid expectations for Federal Reserve policy moves mean indifferent trading conditions in New York today. It also means, however, that the bar for a surprise is getting rather low.
Traders do not have high expectations for Wednesday’s Federal Open Market Committee meeting. Just last week, Fed chair Jerome Powell said there was “nothing in the outlook demanding an immediate policy response [...] and particularly given muted inflation pressures, the Committee has adopted a patient, wait-and-see approach to considering any alteration in the stance of policy”.
If the Fed chair doesn’t think much has changed, why should traders? The soft nonfarm payrolls report may be dismissed as an anomaly. Economists and analysts are predicting a “dot-plot forecast downgrade to just one rate hike in 2019. It is a tad dovish, but nothing new.
The Bank of England interest rate decision and Retail Sales data are on tap March 21 but those events will take a back seat to the ongoing Brexit tragedy. The British government needs to convince the European Union to grant an extension to Article 50 when the EU meets for a summit on March 21-22. That will be unnecessary if Prime Minister May succeeds with a third attempt to get her deal accepted by the House of Commons, which is highly unlikely. The countdown to March 29 continues.
The US dollar meandered around unchanged to its opening levels in New York trading this morning. There was evidence of pre-weekend, profit-taking demand for dollars, until US Industrial Production, Capacity Utilization and Empire State Manufacturing data came in below forecasts. However, Michigan Consumer Sentiment Index (97.8 versus a forecasted 85.3) and JOLTS employment reports were better than expected, and that left the greenback rangebound. The US dollar is likely to close the week with losses against the G10 major currencies except for the Japanese yen.
Wall Street is trading mixed after an initial opening gain. The Dow Jones Industrial Average is close to flat while the S&P 500 and Nasdaq are modestly higher. Traders were encouraged by positive comments from Treasury Secretary Mnuchin and President Trump yesterday about the China trade talks. However, their enthusiasm was tempered by today’s data.
If the Fed chair doesn’t think much has changed, why should traders? The soft nonfarm payrolls report may be dismissed as an anomaly. Economists and analysts are predicting a “dot-plot forecast downgrade to just one rate hike in 2019. It is a tad dovish, but nothing new.
The Bank of England interest rate decision and Retail Sales data are on tap March 21 but those events will take a back seat to the ongoing Brexit tragedy. The British government needs to convince the European Union to grant an extension to Article 50 when the EU meets for a summit on March 21-22. That will be unnecessary if Prime Minister May succeeds with a third attempt to get her deal accepted by the House of Commons, which is highly unlikely. The countdown to March 29 continues.
The US dollar meandered around unchanged to its opening levels in New York trading this morning. There was evidence of pre-weekend, profit-taking demand for dollars, until US Industrial Production, Capacity Utilization and Empire State Manufacturing data came in below forecasts. However, Michigan Consumer Sentiment Index (97.8 versus a forecasted 85.3) and JOLTS employment reports were better than expected, and that left the greenback rangebound. The US dollar is likely to close the week with losses against the G10 major currencies except for the Japanese yen.
Wall Street is trading mixed after an initial opening gain. The Dow Jones Industrial Average is close to flat while the S&P 500 and Nasdaq are modestly higher. Traders were encouraged by positive comments from Treasury Secretary Mnuchin and President Trump yesterday about the China trade talks. However, their enthusiasm was tempered by today’s data.
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