Markets revise US rate rise expectations
Following last night’s lowering of growth forecasts by the Federal Open Market Committee, we have seen several institutions push back their anticipated start dates for US rate rises until later in the year. Highlighting how unique the US standpoint has become is the news that Norway today became the 29th central bank to cut interest rates this year.
The cooling expectations in the US have added to the paralysis that the eurozone is suffering from, as any optimism is quickly quashed by the almost never-ending supply of negativity around attempts to broker a deal with Greece.
The IMF head Christine Lagarde has shown her steely side insisting that Greece must meet its commitments and repay the IMF €1.6 billion by the end of the month. Although those finance ministers attending today’s Eurogroup meeting might be doing so with optimism, it would be surprising if many were doing so with expectations.
US markets rebound
Having seen US equity markets spend the previous three weeks heading lower, the investment community has decided enough is enough and have wholeheartedly bought into the ‘buy on the dips’ mentality, ensuring the Dow Jones has added almost 200 points in the first couple of hours trading.
The economic data released today from the US has sent out a slightly mixed message, as the inflation figures have fallen even further from targets while much better Philly Fed manufacturing data has added a touch of optimism to the scene.
Gold clears $1200 barrier
The weakening dollar has injected new life into gold as the precious metal spent most of the morning session threatening to break back above the psychological $1200 barrier. This bounce comes just days after the markets were given confirmation that the Bank of China was to become one of the institutions tasked with twice daily agreeing the London spot price for gold.
Today has also seen oil prices squeeze higher, with both Brent crude and US light up over 1.5% on the day, a move partly due to the actions of the currency markets.
FOMC downgrade sees dollar weaken
Last night saw the FOMC confirm that it was still calculating an interest rate rise before the end of the year. Regardless of what the commentary might have been, the data however pointed in a different direction. The fact that they had downgraded their own growth forecast for the US economy said something completely different.
Goldman Sachs for its part decided that this was the moment to move its September start date for FOMC interest rate rises out to December. The currency markets have been unequivocal in their assessment of this as the dollar has spent all day weakening against both sterling and the euro.