Article / 15 March 2017 at 8:00 GMT

Morning Markets: Rate hike coming...almost certainly

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Watchlist

  • US: Consumer Price Index (1230 GMT)
  • US: Retail Sales (1230 GMT) 
  • US: FOMC Statement and Economic Forecasts (1800 GMT) 
  • US: Fed Chair Janet Yellen's Press Conference (1830 GMT)

The big day has finally arrived. Tonight the Federal Reserve will disclose by how much (if at all) US interest rates will be changed. A rate hike is almost certain with an anticipated probability of more than 90%. Short of a dramatic and unexpected collapse in today’s CPI trend, the die appears to be cast for a new round of policy tightening.

Consumer inflation at the headline level is expected to continue rising today. On the surface, this looks like another reason for the Federal Reserve to hike interest rates. But core inflation will probably paint a less-compelling reason to squeeze monetary policy.

The headline measure will receive the lion's share of coverage in the media. By that standard, economists expect the annual rate of the consumer price index to inch up to 2.7% through February, a new five-year high. As recently as last July, CPI was running at a below 1% year-over-year rate.

The trend supports a hawkish reading for monetary policy, but core CPI (less food and energy) is on track to dip slightly to a 2.2% rate, based on Econoday.com’s consensus forecast. That’s a sign that inflationary pressure, although firming, isn’t threatening to spin out of control in the near term.

If core inflation doesn’t provide a clear and compelling excuse for higher rates at the moment, maybe today’s consumer spending report will pick up the slack for the hawks.

The year-on-year sales trend has been accelerating in recent months, reaching a five-year high of 5.6% in January. The pace is expected to ease slightly in today’s update for February, according to the econometric forecast from TradingEconomics.com. Nonetheless, the projected 5.5% annual increase still looks strong relative to the last several years. 

In politics election in the Netherlands are widely watched today. The relatively small European economy is doing well, voters however are not expected to widely support the sitting government (read our previous article here). After prime minister Mark Rutte has strongly reacted to Turkish politicians' aim to hold election campaigns in the Netherlands in order to get Turkish citizens there to vote for Erdogan's constitutional change, his party is leading in the polls, though still well behind last election's result.

Market signals

Asian session

  • Jittery Asian investors awaited the Fed's rate decision and its likely global impact
  • Lower crude prices weighed on listed energy companies
  • The Nikkei 225 regained part of an early slide; it closed down 0.16% at 19,577.38 
  • Japan's industrial production for January was revised to minus 0.4%
  • The Bank of Japan began its two-day monetary policy meeting today
  • The Shanghai Composite was up by a slim 0.02% to 3,240.0 at 0514 GMT
  • Korea's Kospi Composite was down 0.13% to 2,131.04 at 0456 GMT
  • Korean investors are distracted by the ouster of their president and the May election
  • Trump will host China's Xi Jinping at a Florida resort in April, in a bid to ease tensions
  • Toshiba is considering selling its troubled Westinghouse nuclear business in the US
  • A new Russia-Iran-India rail link set for completion this year could shake up world trade
  • Australia's consumer confidence rose 0.1% to 99.7 points in March
  • The S&P/ASX200 rebounded from an early fall; it closed up 0.22% at 5,771.50
  • It is more profitable for producers like Origin Energy to sell gas to Asia than in Australia
  • Aussie PM will meet executives from Origin and other players, in a bid to lift gas output

Forex ahead

  • USD clawed back some ground lost against the yen; it was worth ¥114.8140 at 0511 GMT
  • China's yuan lost ground; the US dollar was worth 6.9005 yuan at 0512 GMT
  • The Australian dollar edged slightly higher; it was worth 0.7571 at 0512 GMT

From the Floor

Key driver. 

"Oil could be the catalyst for the next big move in equities," says Garnry.

FOMC hike priced in. 

"It's all about the guidance and the shift in the dot plot," says Hardy. 

Get all the latest from Saxo Bank's trading floors in From the Floor, within the hour.

In opinion

1..2..3
Retail sales strength and upbeat consumer confidence in the US are two factors that lend support to the Fed's case for hiking interest rates later today, says James Picerno.

Asia awaits Fed

Asian equities were weaker following losses on Wall Street overnight, and as traders awaited the rate decision from the Fed, writes Saxo's Singapore trading team.

Turning the page

Iceland is leaving the crisis more and more behind, writes John Acher.

nnn

Tilt train ... the completion of a route linking Russia to India via Iran and Azerbaijan may prompt Moscow to tilt closer to central and south Asia, and weaken its EU links. Photo: Shutterstock

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