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Video / 14 June 2017 at 8:11 GMT

From the Floor: Fed could wax hawkish rather than dovish – #SaxoStrats

   • FOMC widely expected to raise rates, focus on inflation, balance-sheet views
   • Any surprises from the Fed could be on hawkish side: Hardy
   • Longer US rates would need to rise to get USDJPY higher: Hardy
   • Australian stocks have momentum despite weak commodities prices: Garnry
   • Sweden's Hexagon reported to have held talks on possible sale to rival

Saxo strats bannerBy John Acher

The Federal Open Market Committee is widely expected to raise US interest rates by a quarter point on Wednesday, though not to introduce any major shifts in policy.

Any divergence from financial markets' muted expectations for today's FOMC could be on the hawkish side, rather than dovish, as Janet Yellen, whose term as Fed chairman ends next year, is already in legacy mode, says Saxo Bank's FX strategy chief John J Hardy.

Markets are looking for the Fed's policymakers to focus on recently soft US inflation and possibly to discuss plans for unwinding the Fed's hefty balance sheet, though Hardy says the balance-sheet discussion is "going nowhere."  

US May CPI and retail sales data are due before the FOMC's announcement.

"Very little market anticipation going into this meeting," says Hardy. (Read also Hardy's latest FX Update with scenarios for the Fed meeting here on TradingFloor.)

Any sign of Fed hawkishness could get things moving in the likes of USDJPY, which has been under pressure.

"To get USDJPY back higher, we do need to see long US rates higher," says Hardy.

USDJPY remains pressured to the downside
USDJPYSource: Bloomberg/Saxo Bank

Saxo Bank's head of equities strategy Peter Garnry says that on Tuesday Saxo issued a trade idea on shares of oil and gas services firm Petrofac after the company won a $35 million contract with Kuwait Oil.

Petrofac meltdown
Petrofac meltdown
Source: Saxo Bank 

Garnry also notes that Swedish measuring systems firm Hexagon AB is reported to have held talks on being bought by a US or European rival.

And Garnry says that Australian shares have good momentum, despite weak commodity prices and mixed economic performance in China.

Janet Yellen
Yellen "in legacy mode". Photo: Shutterstock 

John Acher is a consulting editor at TradingFloor


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