As expected the Fed kept rates unchanged and more importantly, announced that its balance sheet normalization will kick off next month. The Fed also shared its economic projections including rate hikes expected: once more in 2017, three and two hikes in 2018 and 2019 respectively. As of now, this would result in the Fed Funds rate reaching 2.75% by the end of 2019. Read BMA’s post-FOMC meeting write-up: here.
While treasuries sold-off and the dollar rallied on the back of the FOMC meeting, the market sang a different tune on Friday when threats from North Korea continued to escalate. Ten-year Treasury yields remain higher from when the week kicked off, currently trading around 2.258%. The U.S. dollar index (DXY) traded slightly higher over the week, at 92.19 at the time of this writing.
Across the pond, British Prime Minister Theresa May asked the EU for a two-year transition period after Brexit scheduled for March 2019. In return, the UK will contribute to the EU budget, which is estimated at around EUR 20 billion. The GBP bounced around post-May’s speech but is still trading lower than its USD and EUR counterparts.
Germany took to the polls on Sunday and re-elected Angela Merkel for a fourth term as German Chancellor. Debt yields across the Eurozone rose after the German election. Though a victory for Merkel’s political party (Christian Democrats), the far-right party (Alternative for Germany) gained ground and received 13% of the vote – nearly 3x the votes received back in 2013. The weakened support for Merkel is putting some downward pressure on the Euro though many market participants believe that she will continue to instill fiscal discipline throughout Europe.
This week:
A busy data calendar to cap off the month of September; we will have several Tier-1 type releases that should shed some additional light on Q3 GDP. Highlights will include August New Home Sales (Tuesday), August Durable Goods Orders and August Pending Home Sales (Wednesday), August Advance Goods Trade Balance (Thursday), and August Personal Income & Spending and September Chicago PMI (Friday). In addition, we’ll get the third and final look at Q2 GDP on Wednesday. The initial reading of 2.6% was revised higher back in August to 3.0%. Market expectations are that there may be an additional upward revision to 3.1% later this week.
A jam-packed Fed speak calendar will be highlighted by voting members throughout the week. Following last week’s updated “dot plot”, we are focused on those who are voters. These include Dudley (dove, Monday), Evans (leaning dove, Monday), Kashkari (leaning dove, Monday), Brainard (dove, Tuesday, Wednesday), Yellen (dove, Tuesday), Fischer (leaning dove, Thursday) and Harker (neutral, Friday).
Yellen should garner the most attention; she is due to speak tomorrow at the NABE (National Association for Business Economics) on the topics of inflation and monetary policy.
Overseas key economic releases include: Japanese leading economic indicators (Monday), Bank of Japan’s monetary policy meeting minutes, German business sentiment, New Zealand trade data, GBP inflation hearings (Tuesday), GBP GDP (Wednesday), Swiss economic expectations survey, Eurozone business sentiment (Thursday), Japanese inflation data, German unemployment (Friday), German retail sales, French inflation, Eurozone inflation and Chinese manufacturing data (Saturday).
The central bank of New Zealand is also expected to announce its rate decision on Wednesday. No major policy change is expected.
Good luck!
