After nearly a decade the Fed have finally raised rates

Yesterday’s markets

17th December 2015

  • French Flash Manufacturing PMI: 51.6
  • German Flash Manufacturing PMI: 53.0
  • German Flash Services PMI: 55.4
  • GBP Average Earnings Index 3m/y: 2.4%
  • GBP Claimant Count Change: 3.9K
  • USD Building Permits: 1.29M
  • USD FOMC Economic Projections
  • USD FOMC Statement
  • USD Federal Funds Rate: <0.50%
  • USD FOMC Press Conference
  • NZD GDP q/q: 0.9%

Yesterday morning started with a raft of high tier releases from both the Eurozone and UK, as well as a lot of chatter surrounding the highly anticipated FOMC conference that followed late in the evening. Firstly, the Eurozone economy saw a solid end to 2015, with robust growth in both secondary and tertiary sectors. Eurozone services PMI posted a strong 53.9 and manufacturing registered at 53.1, both readings indicating a healthy level of expansion. UK labour data followed with the headline unemployment figure dropping to a 7 year low of 5.2%. However, average earnings and the claimant count both failed to meet market expectations.

The big news yesterday was of course, the FOMC meeting. As expected the Fed announced a 25bp increase in the target Federal funds rate to 0.25-0.50%. The FOMC's decision was unanimous. The statement accompanying the FOMC decision notes that the Committee now sees the risks to the outlook for economic activity and the labour market as being "balanced", rather than "nearly balanced" as was previously the case. The Fed also believe that inflation will return to 2% in the medium term, probably due to the large decline in energy prices between 2014 and 2015 subsiding. Moving forward, the 'dot plot' the FOMC uses indicates that the median participant still anticipates four 25bp rate hikes over the course of 2016. The FOMC have given themselves plenty of room to manoeuvre as their assessment will take into account a wide range of information, including measures of labour market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. Finally Fed Chair Janet Yellen emphasised that there is no mechanical rule that will determine the timing of the next rate hike.

Today’s markets

16th December 2015

  • German Ifo Business Climate
  • GBP Retail Sales m/m
  • USD Philly Fed Manufacturing Index
  • USD Unemployment Claims
  • USD Current Account
  • NZD Business ANZ Business Confidence
  • JPY Monetary Policy Statement

UK retail sales is forecast to bounce back this week after last month’s poor 0.6% decline. Christmas sales have no doubt boosted this number which markets are expecting to rise to 0.4%. German ifo business climate is scheduled to hit the wires early this morning.