3:00am, USD, Treasury Sec Yellen Speaks
4:30pm, AUD, RBA Rate Statement
6:00am, USD, FOMC Meeting Minutes
4:00am, USD, Fed Chair Powell Speaks
12:30am, CAD, Employment Change
12:30am, CAD, Unemployment Rate
3:00am, USD, CB Consumer Confidence
1:00pm, NZD, Final ANZ Business Confidence
2:00pm, CNY, Manufacturing PMI
7:00pm, GBP, Final GDP q/q
The Federal Reserve has expressed they are more focused on full employment at the detriment of its inflation mandate. Full employment looks to now be the focus. This shift in reason is only now being realised by markets as a reality. At last week’s Fed announcement Chairman Powel outlined where inflation ‘actually’ is, rather than second-guessing where it might end up. Also of note he made it clear that he is not overly bothered by record recent equity prices or higher bond yields. Joe Biden’s 1.9T stimulus money flowing into the US economy will no doubt create short-term rises in prices or a CPI shakeup but it will be a long time before the Fed steps in to take control again. The massive spending in the Whitehouse implies Powell is committed to no further hikes for at least 2 years until inflation is within the target band, or somewhere around 2.0%. The question is, what happens if the inflation target is reached earlier and balloons to 3% or 4%, would the fed be prepared to raise interest rates and jeopardise prospects of full employment? Obviously, full employment helps the struggling but pushing up unemployment in the form of rate increases to restrict inflation, ie tighter monetary policy would be a harder pill to swallow.
2am, USD, Fed Chair Powell Speaks
3am, USD, Fed Chair Powell Testifies
9:15pm, EUR, French Flash Services PMI
9:30pm, EUR, German Flash Manufacturing PMI
9:30pm, EUR, German Flash Services PMI
US Equity markets rose yesterday and the US Dollar weakened post the Federal Reserve announcement. The Fed kept the benchmark rate unchanged at 0.0% saying they planned to remain accommodative while the economy improves. The Fed has thrown billions of dollars over the past year into bonds in order to keep Bond prices high and yield prices and interest rates as low as possible. Powell said he would not adjust the current stimulus lower until the economy reaches full employment and inflation averages 2.0% for a long period of time. The key 10-year bond yield which rises when the bond price falls shot up to 1.64% from 1.62 after the fed announcement, earlier in the day it had traded at 1.68% before the Fed said they would continue to hold interest rates as low as possible while they continue to buy billions of bonds. In summary, the Federal Reserve wants everyone to think that even though the economy is scheduled to perform better with inflation tagged to go much higher, they won’t raise interest rates for years. Fed policy makers raised their forecasts for the economy and inflation but left in place their target interest rate range to around zero until well into 2023.
The volatile week that was, wrapped up with US Stock prices closing at near or at record highs combined with mixed headlines around global vaccination program implementation. The US Dollar Index traded above 92.00 the first time since November 2020 before falling back. The major play of the week was US 10 year Bond Yields closing 0.10% higher at 1.629% becoming the motivation for the greenback to push higher. Concerns around loose Fed monetary policy continue to cause too much excitement among equity markets and if the Federal Reserve signals a more hawkish policy stance this could cause the US Dollar to travel higher. This week’s Fed announcement is Thursday the 18th when all will be revealed.
12:15pm, AUD, RBA Gov Lowe Speaks
3:00pm, CNY, Industrial Production y/y
3:00pm, CNY, Retail Sales y/y
Tentative, JPY, BOJ Gov Kuroda Speaks