Selected Market News
In line with our expectations, the FOMC decided to keep interest rates on hold at its meeting, citing rising global growth risks and tighter financial conditions as adding risks to US growth and putting additional downward pressure on inflation. The FOMC seems to be predominantly worried about China, see also FOMC meeting: Fed takes the cautious approach, 18 September 2015.
The FOMC delivered an overall dovish message to the markets, which confirmed its bias to err on the side of caution. The median ‘dot’ for the Fed Funds rate was lowered throughout the forecast horizon. The number of participants expecting a hike this year declined from 15 to 13. More members are in favour of three hikes next year from four hikes previously. One member now thinks negative rates are appropriate. The unemployment rate and the inflation path were both revised lower.
We still expect the first hike in December. Markets are now pricing in a 44% probability of a hike in December.
We will host a conference call on the FOMC meeting today at 9:00 CET. See CONFERENCE CALL: Follow up on the FOMC meeting for dial-in information.
US fixed income markets rallied on the news. The USD weakened across the board and EUR/USD is currently trading around 1.14. Both S&P500 and Dow Jones closed lower as the immediate rally was erased due to the FOMC’s concerns about the global economic outlook. The oil price is flat. At the time of writing, Asian stocks outside Japan are up across the board, while Japanese stocks are down nearly 1.5%. Be aware that Japanese markets are closed Monday-Wednesday due to a public holiday.
House prices in China rose for the fourth consecutive month in August. New-home prices rose in 35 cities compared to 31 in July. The stabilisation in the housing market is supported by the interest rate cuts and looser restrictions. This supports our view that China is not in for a hard landing.
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