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Deutsche Bank laid out probable market reactions after US Federal Reserve’s monetary policy decision. According to the investment bank, there are three probable scenarios; a hawkish hike, a neutral hike, and a dovish hike and their respective probabilities are 55 percent, 40 percent, and 5 percent. The bank defines hawkish hike as a hike with a projection of more than two hikes in 2017, for the neutral hike, the projection would for two and under dovish hike, the projections would be for less than two hikes in 2017.
According to the investment bank,
- In the case of a hawkish hike, the bank projects higher equities, higher dollar, higher oil price and higher short rates, while credit spread would be narrower, long rates would remain unchanged and yield curve would be flatter.
- In the case of a neutral hike, the bank projects dollar, equities, and oil to be higher, while short rates and long rates would remain unchanged.
- In the case of a dovish hike, the bank projects higher equities and higher long rates and steeper yield curve, while short rates and the dollar would be lower and oil price would remain unchanged.
Interestingly, the bank is projecting higher equities under all scenarios.
