Most Asian equities rallied, following the Fed’s move to raise interest rates without accelerating its timeline for future rate-hikes. Treasuries and gold rallied, while the US dollar weakened. In other central bank news, the BOJ kept its policy decision on hold, while the PBOC increased rates it charges in open-market operations and on its medium-term lending facility hours after the Fed’s rate-hike decision.
- The Fed raised its benchmark lending rate by a quarter point to a range of 0.75% – 1.0%, as widely expected, and continued to project 2 more increases this year, signalling more vigilance as inflation approaches its target. Some had anticipated to see an upward revision to the Fed’s projected rate of hikes this year, from 3 hikes to 4, but were left disappointed as both 2017 and 2018 projections remained the same.
- In its statement, the Fed also repeated a commitment to maintain their balance-sheet reinvestment policy until rate increases were well under way. Minneapolis Fed President Neel Kashkari was the lone dissenter, voting in favour of a rate hold.
- Headline CPI in February rose 0.1% month-on-month and 2.7% year-on-year; analysts had predicted 0.0% and 2.7% respectively. Stripped of food and energy prices, core CPI over the same periods gained 0.2% and 2.2%, matching expectations.
- Retail sales last month rose 0.1% from a month earlier, matching forecasts, but decelerating from an upwardly-revised 1.1% gain in January.
- US equities rose the most in 2 weeks, after the first rate hike in 2017 did not alter officials’ expectations that the central bank will tighten a total of 3 times this year. The benchmark S&P 500 Index rallied 0.8%, with advances in the energy and real estate sector leading gainers.
- The US dollar slumped in the wake of what most observers’ felt was a dovish hike relative to expectations; the Bloomberg Dollar Spot Index fell the most since Jan. 17, ending its session 1.3% lower.
- Treasuries rallied after no revision to the Fed’s “dot plot” were made; the benchmark 10yr Treasury yield tumbled 11bps to 2.49%.
- Canadian household debt ratio rose to a record 167.3% in the fourth quarter of last year, Statistics Canada reported last night, in another sign of strain from a long housing boom. Debt loads have climbed this decade as prices in Vancouver and Toronto surged, while policymakers have warned buyers against taking on too much. Finance Minister Morneau has said he is monitoring conditions after 2 moves to tighten mortgage standards.
- In the Netherlands, the far-right politician Gert Wilders fell short of expectations in elections yesterday, gaining seats by failing to persuade a decisive portion of voters to back his extreme positions on barring Muslim immigrants and jettisoning the EU, according to early results and exit polls. Current Prime Minister Mark Rutte’s Liberals placed first and saw off the challenge from Wilders’ Freedom Party, but lost seats and probably a coalition partner in the process.
- Wage growth disappointed, with average weekly earnings gaining 2.2% from a year earlier, missing out on the 2.4% rise predicted and weekly earnings ex-bonus gaining 2.3%, less than the 2.5% forecasted.
- Jobless claims in February declined 11,300, while the ILO unemployment rate came in at 4.7%, less than the 4.8% expected.
- Australian unemployment unexpectedly climbed in February as the economy shed jobs, indicating spare capacity remains a problem in the labor market and wages and inflation are likely to remain subdued.
- Employment fell 6,400 last month, missing out on the 16,000 gain analysts had predicted. The fall was mainly driven by a 33,500 drop in part-time jobs; meanwhile full-time employment gains totalled 27,100.
- The unemployment rate rose to 5.9% from 5.7% prior, more than the 5.7% which economists forecasted.
- The BOJ kept its unprecedented monetary easing program unchanged, as widely expected, earlier today, just hours after the Fed raised its key interest rate, increasing the policy divergence between the 2 central banks.
- In its statement, the central bank said that it would keep 2 key rates at current levels and maintain the pace of its asset purchases. It kept its assessment of the economy unchanged as well.
- Hours after the Fed’s quarter percentage-point move, the PBOC increased the rates it charges in open-market operations and on its medium term lending facility. The central bank said markets had strong expectations of higher borrowing costs and that open market rate increases don’t necessarily equate to interest-rate hikes, according to its released statement.
- Spot gold rallied the most in 6 months, gaining 2.0% to $1,225.81/Oz earlier following the Fed’s decision to leave median projections for the number of rate-hikes in 2017 and 2018 unchanged.
- It is worth nothing that the last 2 times prior to yesterday the Fed raised rates, gold reacted negatively in the run-up to the announcement only to rally afterwards.
- With the precious metal firmly finding some footing at the $1,200/Oz, at least for the time being, a run up to the 200-day moving average around the $1,260/Oz handle may materialise.
- Silver for immediate delivery rallied as well, jumping 3.5% to $17.4951/Oz.
- Crude oil futures expiring in April gained 2.4% in New York, and a further 0.7% in Asia earlier today, rising above the $49/bbl handle in the process for the first time this week.
- Crude stockpiles in the US unexpectedly dropped by 237,000 barrels last week, according to an Energy Information Administration report, falling for the first time in 2017.
- Elsewhere, an OPEC report on Tuesday showed Saudi Arabia’s production climbed back above 10 million barrels a day in February, although it still remains below a ceiling set under the 6-month cut deal that started on Jan. 1.
- Spot 1.4047
- USDSGD fell 0.8% to 1.4006 earlier today before paring some of its declines late morning.
- The currency pair continues to be bound between the 1.4000 – 1.4250 range, although a break below the 1.4000 support could drive the pair towards its 200-day moving average of 1.3900.
- Spot 0.7687
- AUDUSD initially gained 1.8% to 0.7719 on the back of broad US dollar weakness overnight, but pared its advance following a weaker-than-expected jobs report this morning, which saw the currency pair fall back below the 0.7700 handle.
- Spot 1.3298
- USDCAD fell 1.3% to 1.3283 on the back of US dollar weakness as well as a gain in crude oil price overnight.
- The pair is currently finding some support at its 100-day moving average at 1.3300, although a break below it could drive the pair lower to 1.3200.
- Spot 6.8695
- The PBOC earlier strengthened its daily reference rate by 0.37% to 6.8862 to the dollar, from 6.9118.
- USDCNH initially fell 0.7%, briefly trading below its 6.8500 handle, before paring declines following news that the PBOC had raised borrowing costs in step with the Fed.
- Spot 113.42
- USDJPY declined 1.3% to 113.10, following a weaker US dollar overnight and a relatively non-reaction to the Japanese yen following the BOJ’s decision to leave its policy rate unchanged this morning.
- The key range of 111.60 – 115.60 remains.
- Spot 1.2273
- GBPUSD rose 1.0% to 1.2309, its highest level this month following a rather dovish rate hike by the Fed last night, but has since pared some of its gains ahead of the Bank of England’s rate decision later today.