Market Roundup
• Fed raises target interest rate to 1.00-1.25%, sees one more rate hike in 2017.
• US CPI YY, NSA 1.9% v 2.0% forecast, 2.2% -previous.
• US Core CPI YY, NSA 1.7% v 1.9% forecast, 1.9% --previous.
• US Retail sales MM -0.3% v 0.1% forecast, 0.4% --previous.
• US Business inventories MM -0.2% v -0.2% forecast, 0.2% --previous.
• US MBA Mortgage application 2.8%, 7.1% --previous.
• Median Fed forecasts 2017 - GDP growth 2.2%, unemployment rate 4.3%, core inflation 1.7% .
• Atlanta Fed's GDPNow sees Q2 GDP +3.2% for from 3% on Jun 9.
• Fed: Expects to implement its balance sheet normalization this year,
initially trimming reinvestments in tsy securities by $6 bln per mth and MBS by $4 bln.
• Fed: Cut to reinvestment is seen expanding on a qtrly basis until it reaches $30 bln per month for treasuries and $20 bln per month in MBS.
• Fed's Yellen: Job growth still well above pace needed to absorb new entrants to labor force.
• Fed's Yellen: Additional gradual rate hikes will be appropriate over next few years.
• Fed's Yellen: Fed wants to give advance warnings about balance sheet policy so mkts can prepare.
• Junior UK Brexit minister Baker: We need to be able to control our trade policy post Brexit.
• Delay in ECB stimulus effect does not justify more easing - ECB’s Hansson.
• ECB'S Nowotny: I don't rule out a fall in inflation in 2017 and 2018 if euro appreciates.
Looking Ahead - Economic Data (GMT)
• 22:45 New Zealand GDP - Annual YY* 2.7% forecast, 2.7% -previous
• 01:30 Australia Unemployment rate 5.7% forecast, 5.7& - previous
Looking Ahead - Events, Other Releases (GMT)
• 0430 Switzerland Swiss National Bank to publish its Financial Stability Report 2017
• --:-- European Union Eurozone Finance Ministers meet in Brussels.
Currency Summaries
EUR/USD is likely to find support at 1.1164 levels and currently trading at 1.1216 levels. The pair has made session high at 1.1295 and hit lows at 1.1194 levels. The euro slipped from seven-month highs against the U.S. dollar on Wednesday as dollar reversed its early losses after the Federal Reserve raised U.S. overnight interest rates and said it was prepared to continue tightening monetary policy. It was the second time in three months that the Fed raised interest rates by a quarter percentage point, which was widely expected, and the U.S. central bank cited continued economic growth and job market strength. It also announced it would begin cutting its holdings of bonds and other securities this year. Policymakers also released their latest set of quarterly economic forecasts which showed temporary concern about inflation and continued confidence about economic growth in the coming years. The Fed has now raised rates four times as part of a normalization of monetary policy that began in December 2015. The euro, after earlier rising to its highest level against the dollar since Nov. 9, was last little changed at $1.1215.
GBP/USD is supported in the range of 1.2631 levels and currently trading at 1.2752 levels. It reached session high at 1.2813 and dropped to session low at 1.2722 levels. Sterling fell against the dollar on Wednesday after hitting daily high as dollar pared losses after the Federal Reserve delivered a widely expected interest rate hike and announced it would begin cutting its huge holdings of bonds this year. The U.S. central bank lifted the benchmark lending rate by a quarter percentage point and its policy-setting committee indicated the economy has been expanding moderately, according to a statement following a two-day meeting. The pound had been recovering from its almost 3 percent slide since Prime Minister Theresa May unexpectedly lost her parliamentary majority in elections last Thursday. The wages numbers added to a handful of worrying signals since the election for an economy that is now trailing many of its European contemporaries. Pay grew at the slowest pace since February 2016, rising an annual 2.1 percent in the three months to April compared to forecasts of growth of 2.4 percent. Wednesday's data showing the worsening hit to earnings is likely to add to the view among the majority of Bank of England officials to leave interest rates on hold when they announce their latest policy statement on Thursday. Sterling was down 0.3 percent on the day at $1.2754, having traded as strong as $1.2823 earlier.
USD/CAD is supported at 1.3164 levels and is trading at 1.3223 levels. It has made session high at 1.3270 and lows at 1.3164 levels. The Canadian dollar strengthened against its U.S. counterpart on Wednesday as increased bets that Bank of Canada will raise interest rate strengthened Canadian dollar but some gains were pared after dollar recovered from earlier losses after Federal Reserve delivered a widely expected interest rate hike. Chances of a rate hike by Bank of Canada this year have surged to more than three-in-four after hawkish comments this week from central bank officials, including Governor Stephen Poloz. Chances were less than one-in-four before stronger-than-expected jobs data on Friday. Crude oil prices slumped to their lowest close in seven months on Wednesday, hit by an unexpected large build in gasoline inventories. U.S. crude oil futures settled $1.73 lower at $44.73 a barrel. The Canadian dollar was last trading at C$1.3240 to the greenback, up 0.1 percent. The currency's weakest level of the session was C$1.3270, while it touched its strongest since Feb. 28 at C$1.3165.
USD/JPY is supported around 108.68 levels and currently trading at 109.53 levels. It peaked to hit session high at 110.33 and made session lows at 108.75 levels. The U.S. dollar strengthened against the yen in the late US session on Wednesday as greenback clawed back from its earlier losses after Fed raised interest rates for second time this year. The U.S. central bank lifted the benchmark lending rate by a quarter percentage point and announced it would begin cutting its huge holdings of bonds and securities this year. Its policy-setting committee also indicated the economy has been expanding moderately, and that it viewed a recent softness in inflation as transitory, according to a statement following a two-day meeting. The U.S. dollar had been pressured by weaker-than-expected economic data but reversed most of its losses against a basket of major currencies after the Fed raised rates. U.S. consumer prices unexpectedly fell in May and retail sales recorded their biggest drop in 16 months, suggesting a softening in domestic demand that could limit the Federal Reserve's ability to continue raising interest rates this year.
Equities Recap
European shares pulled back on Wednesday, as energy stocks fell on tumbling crude prices and banks were hit after weak U.S. data raised questions over future rate hikes in the world's biggest economy.
The UK's benchmark FTSE 100 closed down by 0.11 percent, FTSEurofirst 300 ended the day down by 0.18 percent, Germany's Dax ended up 0.48, and France’s CAC finished the day down by 0.17 percent.
A slide in technology stocks pulled down the Nasdaq Composite on Wednesday and the S&P 500 ended slightly lower, as investors worried about the pace of economic growth after weaker-than-expected inflation numbers and an interest rate hike from the Federal Reserve.
Dow Jones closed up by 0.23 percent, S&P 500 ended down 0.10 percent, Nasdaq finished the day down by 0.40 percent.
Treasuries Recap
U.S. Treasury yields pared declines but remained lower on Wednesday after the Federal Reserve raised interest rates, announced it would begin cutting its holdings of bonds and other securities this year, and forecast one more rate hike in 2017.
U.S. 10-year yields were last at 2.138 percent after touching 2.103 percent earlier, their lowest since Nov. 10. U.S. 30-year yields were last at 2.780 percent after touching their lowest since Nov. 9 of 2.765 earlier.
Commodities Recap
Gold turned negative on Wednesday after the Federal Reserve increased interest rates but was less dovish than expected following a two-day meeting, and the dollar sharply pared its losses against a basket of major currencies.
Spot gold fell 0.2 percent at $1,263.03 an ounce by 3:10 p.m. EDT (1910 GMT), while U.S. gold futures for August delivery settled up 0.6 percent at $1,275.90 prior to the Fed's statement.
Crude oil prices slumped nearly 4 percent to their lowest close in seven months on Wednesday, hit by an unexpected large build in gasoline inventories and an international outlook that suggests a big increase in supply in the coming year.
After rising for three consecutive days, U.S. West Texas Intermediate crude futures fell $1.73, or 3.7 percent, to settle at $44.73 per barrel, its lowest close since Nov. 14. WTI has dropped 18 percent since its closing high of $54.45 in late February.Brent also slumped, losing $1.72, or 3.5 percent, to settle at $47 a barrel.
