20 Dec: Fed raise by 25bp; Expect 2 more hikes in 2019. Australian jobs date due shortly, BOJ, BOE Meetings later.

By | December 20, 2018

 

So the Fed raised rates by 25bp to 2.5% with the statement citing that the labor market has continued to strengthen and that economic activity has been rising at a strong rate, while on a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2%. Indicators of longer-term inflation expectations are little changed. In his press conference, Fed chair, Powell, suggested that the outlook is now for 2 rate hikes in 2019; down from 3 previously although several voters do still think that 3 hikes will be required. He also noted that while inflation has been slightly lower than expected, it is anticipated to remain at close to 2%. He went on to say that the Fed sees seen some developments that suggest some softening in the economy although the changes have not fundamentally altered the outlook.

The effect on the markets has meant some choppy conditions with the US$ a little soft ahead of the decision but then regaining those losses. The DXY is at 97.00. The commodity currencies are heavy, particularly the Aud$ which is suffering from the differential outlook given that the RBA look to remain on hold through 2019.  The metals are a bit lower too (Gold -0.4%). Stocks were pretty much flat but then headed lower as the press conference progressed and at the time of writing the DJI is down by around 2%, while the S+P is lower by 1.4%. Bond yields are lower with the US10Y currently at 2.79%. WTI has been volatile but is currently up by around 2% on the day, in the middle of its session range, and above yesterday’s trend lows.

Thursday will be spent covering the ramifications of the FOMC Meeting, and liquidity is likely to begin to run out later in the day as we head towards the holiday. The day will begin with the NZ Q3 GDP (exp 0.6%qq, 2.8%yy) and Trade Balance and will be followed by the Australian Unemployment (exp 5%, +20k) and the BOJ Meeting – at which no change to policy is expected, so the focus will be on the Statement/Press Conference.  Europe will look to the EU Current Account and UK November Retail Sales (exp 0.3%mm, 1.9%yy) and will be followed by the BOE Meeting/Statement/Minutes/Vote Count/APP Facility. No change is expected, and with the BOE having no more clue about Brexit than anyone else, I would think they will be very cautious in their statement.   The US will end the session with the Philadelphia Fed Mfg Survey and the weekly Jobless Claims. Have a good day.

Economic data highlights will include:

Thur: NZ Trade Balance, Q3 GDP, Credit Card Spending, Australian Unemployment, BOJ Meeting/Interest Rate Decision/Press Conference, EU Current Account, BOE Meeting/Statement/Minutes/Vote Count/APP Facility, US Philadelphia Fed Mfg Survey, Jobless Claims

CURRENCIES
EURUSD: 1.1371
Res  1.1405  1.1440  1.1475
Sup  1.1345  1.1310  1.1270
USDJPY: 112.34
Res  112.55  112.80  113.00
Sup  112.10  111.90  111.70
GBPUSD: 1.2620
Res  1.2635  1.2655  1.2680
Sup  1.2605  1.2580  1.2560
USDCHF: 0.9942
Res  0.9990  1.0035  1.0085
Sup  0.9890  0.9860  0.9825
AUDUSD: 0.7107
Res  0.7120  0.7135  0.7150
Sup  0.7085  0.7070  0.7050
NZDUSD: 0.6795
Res  0.6820  0.6840  0.6865
Sup  0.6775  0.6755  0.6735
INDICES / COMMODITIES
S&P.fs: 2498.78
Res  2515.00  2530.00  2545.00
Sup  2490.00  2475.00  2460.00
DJ30.fs: 23290.00
Res  23445.00  23580.00  23770.00
Sup  23160.00  23015.00  22855.00
SPI200.fs: 5495
Res  5535  5550  5570
Sup  5485  5465  5445
XAUUSD: 1243.02
Res  1245.00  1250.00  1255.00
Sup  1240.00  1235.00  1230.00
XAGUSD: 14.56
Res  14.75  14.90  15.05
Sup  14.50  14.35  14.20
WTI.fs: 47.16
Res  47.60  48.30  49.20
Sup  46.60  46.10  45.50