Article / 21 September 2016 at 5:01 GMT

3 Numbers: Hike unlikely, but Fed may be laying the groundwork

editor/analyst /
United States
  • A fresh set of projections will be part of today’s policy statement from the Fed
  • A strong bullish trend continues to prevail for India’s stock market
  • Is Brazil’s currency in US dollar terms regaining its former strength?

By James Picerno

The Federal Reserve Bank’s policy decision and press conference with chair Janet Yellen are the main events for today’s news cycle.

Keep in mind that the central bank also publishes its quarterly economic outlook, which deserves close attention for a clear measure of how or if the Fed’s macro assumptions have changed.

It's worth remembering the powerful upswing in Indian stocks and Brazil’s real, which may be poised to resume its former strength against the US dollar.

US: Federal Reserve Economic Forecasts (1800 GMT)
Today’s decision on interest rates by the Federal Reserve at 1800 GMT, and the subsequent press conference by Fed chair Janet Yellen at 1830 GMT, will draw the biggest crowd.

But the central bank’s macro projections may speak loudest in terms of what policymakers are expecting.

The main question: Will the Fed continue to lower growth estimates? In the last set of quarterly figures, released in June, the outlook for real GDP growth in 2016 and next year was trimmed to 2% from 2.2% and 2.1%, respectively. That’s well down from 2015’s 3.7% increase in output.

The message, of course, is that the monetary mavens are anticipating that the US economy will continue to decelerate to the slowest pace for a calendar year since 2013.

The potential for something better isn’t dead yet, however. The Atlanta Fed’s GDPNow model is currently estimating Q3 GDP growth at 2.9% (seasonally adjusted annual rate), which represents a considerable improvement over the roughly 1% gains in each of the previous three quarters.

But while the forward estimate for the economy in Q3 looks encouraging, the rearview mirror suggests caution. Indeed, the recent run of numbers for August have been weak.

Industrial production and retail sales fell last month. Meantime, ISM survey data for the manufacturing sector dipped into contractionary territory for the first time in six months while the non-manufacturing sentiment index tumbled to its lowest (but still positive) reading in six years in August.

Payrolls continued to expand last month, although the gain was well below the pace in the previous two months.

The Fed will be hard pressed to rationalise a rate hike in the current environment. That’s old news at this point.

The question is whether Yellen and company are laying the groundwork for tighter policy in December, which most analysts say is the next likely date for a rate hike.

But expecting a year-end round of policy tightening will suffer longer odds if GDP estimates tick lower again in today’s update.

India: BSE 30 Sensex Index India’s stock market is on a tear as we approach the third quarter. Perhaps that’s because expectations for India’s economic growth are red hot as well.

Fidelity Investments, a US-based money manager, last week published a chart showing that India’s expected real GDP growth through 2035 will top the list for emerging and developed-market countries.

The projected annualised rise of nearly 6% is well ahead of the rest of the field, including the estimated gain for China, which is in the low 4% range, according to Fidelity.

Long-term estimates should be viewed cautiously, of course, but for the moment India’s equity market is inclined to price in a rosy macro outlook.

 Solidly bullish: India's national stock exchange is enjoying halcyon days. Photo: iStock

The firmer trend for the BSE in recent months marks a change from this year’s first quarter, when the index was suffering. But sentiment remains solidly bullish these days.

Notably, the BSE is trading well above its 50, 100 and 200 Day Moving Averages. Positive momentum, in short, looks set to continue.

“Over the last few years, we have seen a shift in investment towards equity class as investment avenues like real estate and gold are not doing well,” notes Bajaj Capital Group’s CEO and director.

The fuel for the rally, it seems, is both technically and fundamentally sound.


USDBRL Brazil’s recently installed president, Michel Temer, reaffirmed his plans this week for economic reform.

Speaking to Bloomberg on Monday, Temer said that he would forge ahead with difficult but necessary restructuring efforts to help the country emerge from a deep recession and political crisis.

“Temer’s biggest asset, which also makes him different from [his predecessor] Rousseff, is his political ability,” the chief economist at Infinity Asset Management in Sao Paulo told Bloomberg earlier this week. “With his demonstrations of strength, he’s showing we’re on the right track.”

Brazil’s currency is showing its own demonstration of strength lately. Although the real has weakened modestly since mid August against the US dollar, the bullish trend that’s been underway for much of 2016 appears to be resuming in recent days.

After USDBRL popped higher last week, reaching nearly 3.336 against the greenback on September 15, the real recovered to roughly 3.260 as of mid-day trading on Tuesday (lower USDBRL values equate with a stronger real).

The currency’s renewed strength is a bit surprising in the wake of Monday’s news that a closely followed economic indicator published by Brazil’s central bank - the IBC-Br Economic Activity index - posted a mild decline in August after rising in July. The data is used as a proxy for GDP.

But forex traders weren’t deterred and have continued to buy the real this week. That’s a sign that the currency’s bulls are tenacious. Are they also misguided?

The next major clue is scheduled for next Tuesday via the September report on consumer confidence. Meantime, the real’s bullish trend appears to be regaining its former mojo.

-- Edited by Adam Courtenay

James Picerno is a macro analyst/editor at Follow James or post your comment below to engage with Saxo Bank's social trading platform


The Saxo Bank Group entities each provide execution-only service and access to permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on or as a result of the use of the Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail