As a reminder for traders who are still a bit groggy after celebrating America’s independence yesterday, the Federal Reserve opted to raise its benchmark interest rate by 25bps to the 1.75-2.00% at its meeting three weeks ago (see “FOMC recap: Hawkish statement and projections, hesitant Powell”).
Financial markets are once again in risk aversion mode on Wednesday, as investors continue to take shelter from the ongoing trade spat. There hasn’t been much progress – positive or negative – in recent days although U.S. Treasury Secretary Steve Mnuchin did deny reports that the country is looking to block investment from China in U.S. tech, instead claiming there will be a statement aimed at all countries trying to steal technology.
FIFA has trumped forex so far in trade this week, with the major currencies consolidating in relatively tight ranges against one another. The U.S. dollar is consolidating against its rivals so far today, gaining ground against the commodity dollars and pound sterling but losing ground against traditional safe havens such as the yen and Swiss franc.
Tuesday’s Core CPI read may not be the event you pay admission for in a week highlighted by a trio of central bank policy meetings and a historic Summit between President Donald Trump and North Korean dictator Kim Jung Un, but it begs to set the tone. In fact, Wednesday’s FOMC Meeting encourages a stronger emphasis on this inflation indicator.
Weening a country, or market, off easy money is tricky, even when it’s done slowly, as the Federal Reserve is doing. The removal of monetary accommodation is not made any easier by protectionist threats and counter threats that complicate the macroeconomic mix, roil markets and tighten financial conditions.
The final trading day of April kicked off with a positive mood in Asia after North Korea’s Kim Jong-un made history by crossing into South Korea. The scene of Kim Jong-un shaking hands with Moon Jae-in brought cheer to financial markets as the two leaders vowed to work towards denuclearizing the Korean peninsula, hopefully ending a seven-decade conflict.
With geopolitical theatre (trade war posturing, central bank comments, FBI raids of Presidential lawyers, etc) grabbing all the headlines this week, it’s easy to forget that there is still some potentially market-moving economic data scheduled for release.