30 October 2014
Good FOMC and RBNZ morning
# Australian New Home Sales
# German CPI
# RBNZ FX Transactions Data
# U.S. Q3 GDP
# U.S. Weekly Jobless Claims
# Fed Chair Yellen speaks
# European stocks pared moderate gains by the end of the session to end up 0.16% after being up as much as 0.60%. Caution was clearly the sentiment of the day ahead of the FOMC statement. Stateside it was all about the Fed and their latest FOMC meeting. U.S. stocks were down mildly to the tune of about 0.25% heading into the Fed. The announcement showcased a brighter assessment of the U.S. job market, along with the expected end of QE, a shift that investors reckoned could bring forward the timing of interest-rate increases. The Dow declined upwards of 100 points in the aftermath however it has bounced back relatively well to be almost back at par heading into the close. The view may well be that if the Fed is confident of the state of the U.S economy then stocks can remain in the multi-year uptrend. The broad measure of the market, the S&P500 ended down only 0.14%.
# The Federal reserve policy board gave a nod to the improving labour market, surprising many who felt they would concentrate on the still subdued inflation outlook. The press release noted “that economic activity is expanding at a moderate pace” and “labour market conditions improved somewhat further, with solid job gains and a lower unemployment rate”. They went on to say “ We feel that there has been a substantial improvement in the outlook for the labour market since the inception of its current asset purchase program. Moreover, the Committee continues to see sufficient underlying strength in the broader economy to support ongoing progress toward maximum employment in a context of price stability”. The communique is a watershed event in our opinion and will likely drive the USD higher along with U.S. yields. That said, and providing some balance the committee said “even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run”. A clear remark on the depths this economy is coming back from (the long discussed ‘new normal’).
# The USD rose strongly in the wake of the FOMC statement with the divergence between the Fed and most other western central banks never clearer than right now. The NZD/USD shed upwards of 2% from the overnight high whilst the EUR/USD and AUD/USD fell more like 1%.
# The RBNZ dropped it reference further policy tightening in this morning’s OCR decision saying “A period of assessment remains appropriate before considering further policy adjustment “ versus the previous statement where they stated “ we expect some further policy tightening to be necessary”. They went on to reaffirm that the NZD level remains unjustified and unsustainable and that they expect further significant falls for the local currency. Regarding one of our favourite hobby horses the RBNZ said NZ house price inflation had “fallen significantly”.
# U.S. treasury yields, as measured by the benchmark 10 year note, rose from 2.27% to 2.36% before settling at 2.32%.
Graham Parlane - BBY (NZ) Limited, a specialist advisor in Futures - FX - CFD - Options - Shares - Gold - Silver - Commodities - Managed Accounts - DIMS