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 TradeTheNews.com Weekly Market Update: Fed’s patience is gone but not forgotten

As expected, the FOMC altered its forward guidance this week, replacing the “patient” line with broad language that emphasized its core policy principle of remaining data dependent. Fed Chair Yellen couched the change in pretty stark terms: “just because we removed the word patient from the statement doesn’t mean we’re going to be impatient.” The FOMC also lowered its economic forecast for 2015-16, hinting that the data might not be as rosy as required for a normalization of interest rates. Nearly every global asset class saw big moves on the decision: equities soared, the euro saw an astonishing move across five big-figures (EUR/USD made a round trip from 1.0580 to 1.1050 and back to 1.0650, the second broadest one-day range seen since 2000), and the 10-year UST yield dropped as low as 1.90% and remained below 2% through the end of the week. By Friday, the Shanghai Composite posted a fresh multi-year high, the FTSE index surged above 7,000 for the first time ever, while the Nasdaq approached its all-time closing high of 5048 set in March 2000. For the week, the DJIA added 2.1%, the S&P500 rose 2.7% and the Nasdaq gained 3.2%.

The FOMC replaced patient with a statement that policy tightening would be appropriate when the Fed “has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.” Maybe more importantly though the updated economic forecasts revealed officials now foresee the rising US Dollar serving as a significant headwind to exports and thus a potential drag on growth as well as inflation. Officials also adjusted their outlook for remaining slack in the labor market; forecasts for the long-run level of the unemployment rate shifted down a couple of tenths of a percent. Yellen affirmed that every meeting starting in June will be a “live” meeting for considering rate lift off, but indicated a number of reservations about wage growth, low inflation, and the strong dollar, leaving most analysts saying she was more dovish than they had hoped.

The impact of the brutal winter weather in the US showed up in housing data this week. February housing starts dropped 17% from January to an annualize rate of 897K, while building permits hit a nine-month low of 1.09M. Permits grew slightly over the January rate, although the bulk of permits were for multi-family units, with continued softness in single-family permits. Homebuilder confidence dipped lower than expected in March. The NAHB index of homebuilder sentiment fell for the third straight month and missed expectations. Despite the data homebuilders KB Home and Lennar reported solid Q1 results and suggested the spring selling season is getting off to a solid start.

Greece and its European patrons remain locked in contentious negotiations. Greece is at the very edge of solvency, a position the Europeans appear to be using for maximum advantage to squeeze more reforms out of Athens and beat back Syriza’s electoral pledges to end austerity. Right now the consensus is that Greece has enough funds to pay debt coming due in March but may run out of cash in April, though it may unlock a few billion more euros at next week’s Eurogroup meeting. On Friday, German press sources were reporting that German Finance Minister Schaeuble expected Greece to be ultimately forced out of the Eurozone even as Chancellor Merkel still wanted to keep Greece in the monetary union for political reasons.

Continue reading “Futures Levels & Economic Reports 3.24.2015”

TradeTheNews.com Weekly Market Update: ECB QE Stretches Markets