Markets around the world continue to react to yesterday's Fed news. In addition to the widely expected 0.25% rate hike, the central bank painted a positive picture of the US economy of strong job growth, and strong economic growth. Fed Chair Yellen indicated the US doesn't need fiscal stimulus to reach the national employment target, clearly ignoring that some regions are doing a lot better than others.
The dot plot of Fed Funds forecasts has been front and centre once again with the forecasts looking toward 3 rate hikes for 2017 up from 2 in the September dot plot. This has ignited a major rally in the US dollar which has gone screaming up 2% or more against other currencies. Gold is down 2.8% overnight, while silver is down 5.4%. EUR/USD has broken down under 1.0500, GBP/USD has been knocked back under $1.2500 while USD/JPY has soared from 115 toward 118 and USD/CAD had rallied from near $1.3100 toward $1.3300.
Between the US dollar rally and US treasury yields blasting through 2.50%, the short term outlook for US corporate earnings has weakened considerably impacting stock prices. Although US index futures have stabilized overnight, US indices are still licking their wounds. The Dow, for example, was challenging 20,000 before the meeting and now is struggling to hold on to 19,800. The Hang Seng took a 1.7% hit overnight. The FTSE and Dax are trying to bounce back a bit rising 0.3% and 0.7% respectively.
There has been a ton of other news overnight. The Bank of England, Swiss National Bank, Norges Bank and the Bank of Korea all held monetary policy steady as expected. Flash PMI reports for December have been well above expectations, a positive sign for Japan and Europe, with the US due later this morning.
Crude oil is one of the few markets that has been able to stand up to the strong dollar overnight shrugging off yesterday's initial post meeting losses. WTI is up 0.2% today with Brent up 0.6%. Energy markets could be active again with natural gas storage due mid-morning and temperatures plunging in consuming regions.
Corporate News
There have been no major corporate announcements this morning.
Economic News
UK Bank of England decision 0.25% and £435B QE no change as expected
Switzerland SNB interest rate (0.25%) to (1.25%) no change as expected
Switzerland SNB deposit rate (0.75%) no change as expected
Norway Norges Bank interest rate 0.50% no change as expected
US FOMC Fed Funds Rate 0.25% increase to 0.50% - 0.75% as expected
Member projections for 2017
GDP 2.1% up from 2.0%
Unemployment rate 4.5% down from 4.6%
Core PCE inflation 1.8% unchanged
Fed Funds Dot plot
0 increases 0.75% 0
1 increase to 1.00% 2
2 increases to 1.25% 4
3 increases to 1.50% 6
4 increases to 1.75% 4
6 increases to 2.25% 1
UK retail sales 5.9% as expected
UK retail ex auto 6.6% vs street 6.0%
France flash manufacturing PMI 53.5 vs street 51.8
France flash service PMI 52.6 vs street 51.9
Germany flash manufacturing PMI 55.5 vs street 54.5
Germany flash service PMI 53.8 vs street 54.9
Japan flash manufacturing PMI 51.9 vs previous 51.3
NZ Business PMI 54.4 vs previous 55.2
Australia employment change 39K vs street 17K vs previous 11K
Australia full-time jobs 39K vs previous 41K
Australia part-time jobs 0K vs previous (31K)
Australia unemployment rate 5.7% vs street 5.6%
Singapore retail sales 2.2% vs street 0.3%
Upcoming significant economic announcements include:
8:30 am EST US consumer prices street 1.7%
8:30 am EST US core CPI street 2.2%
8:30 am EST US real average weekly earnings previous 0.9%
8:30 am EST US jobless claims street 255K
8:30 am EST US Philadelphia Fed street 9.1 vs previous 7.6
8:30 am EST Canada manufacturing sales street 0.4%
9:45 am EST US flash manufacturing PMI street 54.5
10:30 am EST US natural gas street (124 BCF) vs previous (42 BCF)
10:30 am EST Bank of Canada financial system review report
11:15 am EST Bank of Canada Poloz press conference