Markets unsure what to do even though the Federal Reserve surprised no one and decided to keep rates the same in its meeting yesterday. In New York the S&P finished effectively flat but the Dow dropped 0.7 per cent while the Nasdaq climbed 0.4 per cent. Rising tech stocks and falling industrials leading to a balanced performance of the S&P one would imagine.
In Europe, the European Central Bank meets later on and markets are widely predicting a 0.25 percentage point increase. Shares this morning were a little nervy with the DAX and CAC 40 down 0.25 and 0.5 per cent. The FTSE 100 is calmer and flat in early trading with gilt yields also calmer as well, following yesterday’s panic. Hermione Taylor has a good explainer on the unique issues affecting the UK right now.
I have no idea why the Fed skipped but still signalled two more hikes to come. It makes no sense to me except maybe they want to see how it goes as the Treasury restarts issuance. The FOMC said: "Holding the target range steady at this meeting allows the Committee to assess additional information and its implications. In determining the extent of additional policy that may be appropriate, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”
I don’t really know what this means except – we think maybe we won but would like to keep a couple of hikes up our sleeves. Core inflation is still 5 per cent – maybe we should just be happy with that. And as I say, issuance restarts with a deluge of bond sales so markets were unsure how to take a hawkish pause. Powell did lean against cuts, stressing that: “Not a single person on the Committee wrote down a rate cut this year, nor do I think it is at all likely to be appropriate if you think about it.” Duh. Higher for longer is the message.
Elsewhere, China cut its Medium Term Loan Facility rate by 0.1 percentage points to 2.65 per cent, from 2.75 per cent, the first cut in 10 months, whilst China IP and retail sales slowed and real estate and fixed asset investment both fell.
We Soda pulled its IPO – be assured this has nothing to do with London as a venue and in fact it’s certainly a good thing that UK investors gave this one short shrift. The PR is hilarious...”extreme investor caution” = “lots of interest on the short side!” All kinds of red flags and London showed it out. More on that here.
The Trader is written by Neil Wilson, chief market analyst at Finalto
