Continuing Financial Market Volatility on this FOMC Decision Day

January 27, 2016

The FOMC will release a U.S. monetary policy statement at 19:00 GMT (14:00 EST).  The statement this time will not be accompanied by new forecasts or a subsequent press conference.  The federal funds rate was hiked at the prior meeting in mid-December, so a further increase at this one never appeared likely.  The current interest rate target is a range of 0.25-0.50%.  Since the last meeting, economic data have suggested that U.S. GDP slowed to less than 1.0% last quarter (the first estimate of such is being released this Friday).  Oil prices are considerably lower now than then, pointing to a later restoration of 2% inflation than Fed officials were then assuming.  Financial markets have behaved poorly and been fraught with turbulence, sharply reducing global wealth.  External geopolitical and economic news has been scary.  At the December meeting, the Fed implied officials were predisposed to engineering about four rate hikes in 2016, that is one every other meeting on average.  Markets then and since have been predisposed to fewer tightenings.  Investors will comb the Fed’s statement for signs of a convergence with the more cautious belief of investors regarding how much Fed restraint the U.S. and world economies can handle.

Stocks in Asia today were mixed.  The Japanese, South Korean, Indonesian and Hong Kong exchanges closed up 2.7%, 1.4%, 1.6%, and 0.8%.  Equities fell by 1.2% in Australian, 0.5% in China and 0.1% in New Zealand, by comparison.  The balance of market pressure in Europe swung more decisively toward risk aversion.  Stocks have fallen 1.8% in Italy, 0.9% in Germany and Switzerland, 0.8% in France, 0.6% in the U.K., and 0.4% in Greece.

Among 10-year sovereign debt yields, Japan’s JGB ticked up a basis point, Germany’s bund edged down a basis point and the British gilt is unchanged.

West Texas Intermediate crude oil slumped back 3.4% to $30.38 per barrel. Comex gold is 0.2% higher at $1,117.65 per ounce.

The dollar has declined 0.6% against the Australian dollar, 0.3% versus the loonie and 0.1% vis-a-vis the euro, yen, Swissie and yuan.  The dollar is steady against the kiwi and 0.3% firmer versus sterling.

Australian CPI inflation last quarter rose more than expected, climbing 0.4% versus the third-quarter level and 1.7% on year after back-to-back 1.5% results in 2Q and 3Q.  The trimmed mean measure of core inflation stayed at 2.1%, but the weighted median core CPI series fell to 1.9% from 2.1% in 3Q and 2.4% in the first half of 2015.

Small business sentiment in Japan fell 1.1 points to a 7-month low of 47.2 in January.  50 is a neutral level.

The Westpac index of Australian leading economic indicators fell 0.3% last month on top of November’s decline of 0.2%.

Chinese profits posted a larger 4.7% on-year decline in January after drops of 1.4% in November, 4.6% in October and 0.1% in September.  This was the seventh on-year decrease in a row.  But Chinese consumer sentiment rose in January for a third straight time, gaining 1.2 points to 114.9.

German consumer confidence held steady at a reading of 9.4 this month.

Italian consumer confidence increased unexpectedly in January, rising 1.2 points to 118.9, which is the best score in over 3 years.  However, Italian manufacturing confidence fell 1.8 point, and overall economic sentiment was also lower.

In a continuing see-saw pattern, French consumer confidence bounced back in January to November’s level of 97.  In October and December, the reading was 96.

Finnish consumer sentiment improved 5.8 points to 8.2 in January, a 5-month high.  Business sentiment in Finland also improved, climbing 2 points to -9.  Finnish seasonally adjusted unemployment stayed unchanged at 9.4% last month.

The Swiss consumption indicator compiled by UBS rose for a third straight month, reaching 114.9 in January after 113.7 in December and 113.1 in November.

British house price inflation according to the Nationwide index edged down 0.1 percentage point to 4.4% in January from December’s 7-month high.

British mortgage approvals according to data collected by the British Bankers Association fell to a 7-month low of 43,975 in December.

Swedish economic sentiment rose 1.6 points to 111.9 in January.  While manufacturing sector confidence improved, consumer sentiment fell.

Brazilian consumer sentiment advanced 2.4 points to a 5-month high of 67.9 this month.

U.S. mortgage applications leaped 8.8% last week.  Demand was stimulated by a further 4-basis point drop in the 30-year fixed mortgage rate to a 3-month low of 4.02%.

U.S. new home sales data and weekly oil inventories get released today, but the dominant event will be the FOMC statement.  One hour after the FOMC statement gets released, the Reserve Bank of New Zealand announces its latest interest rate decision.

Copyright 2016, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

Tags: , ,


Comments are closed.