World Week Ahead: Fed meeting on tap

Monday 14th March 2016

Following hot on the heels of European Central Bank President Mario Draghi’s more-generous-than-expected additional stimulus measures, US Federal Reserve policy makers gather for their much-anticipated two-day meeting.

However, the message from Fed Chair Janet Yellen is expected to be very different than Draghi’s as a recent string of better-than-expected US economic data has made investors realise multiple US rate hikes might be on the menu this year after all.

“Financial markets for a while were completely out in the weeds, running around looking at things that turned out not to be real risk,” Torsten Slok, chief international economist at Deutsche Bank, told Reuters.

The Federal Open Market Committee ends its two-day meeting on Wednesday, and investors will scrutinise its statement and economic projections, as well as comments during a press conference by Yellen.

"It’s going to be a session with parsing individual words in the statement about how likely the market believes the Fed is to move, how quickly they are going to move for the next hike," Walter Todd, chief investment officer at Greenwood Capital Associates in Greenwood, South Carolina, told Reuters.

Last Friday, markets on both sides of the Atlantic rallied.

In Europe, a 2.6 percent rise in the Stoxx 600 index on Friday helped it post a gain of 0.1 percent for the week. The initial leap in the wake of Draghi’s fresh rate cuts and additional bond-buying, announced on Thursday, faded as soon as he told reporters in a post-decision news conference that he saw no future rate cuts.

“Draghi made the mistake of essentially saying that the ECB was done with stimulus," Teis Knuthsen, chief investment officer at Saxo Bank’s private-banking unit in Hellerup, Denmark, told Bloomberg. "At the end of the day, the ECB delivered more than expected and is pumping a lot of money into the system. A few years ago this would have marked the start of a significant rally, but now there seems to be a widespread fatigue with monetary policy.”

Wall Street gained too, on Friday. The Dow Jones Industrial Average added 1.3 percent, while the Standard & Poor’s 500 Index climbed 1.6 percent, and the Nasdaq Composite Index increased 1.9 percent.

Friday’s advance helped Wall Street to post a gain for the week, with the Dow up 1.2 percent, while the S&P 500 up 1.1 percent, and the Nasdaq up 0.7 percent.

This week will also offer meetings and policy decisions at the Bank of Japan, on Tuesday, and the Bank of England, on Thursday.

Meanwhile People Bank of China's governor Zhou Xiaochuan on Saturday said the central bank would maintain a "prudent" policy. He also noted a gradual “return to normalcy and rationality” in the yuan.

“The current monetary policy is prudent with a slight loosening bias,” Zhou told reporters at a scheduled news conference in Beijing on Saturday on the sidelines of the annual parliament session, Reuters reported. “We also want to stress that monetary policy should be adjusted dynamically depending on the judgment towards the economic situation.”

In Britain, Finance Minister George Osborne will announce plans on Wednesday to sell 16 billion pounds (US$23 billion) worth of bank assets which were rescued from Bradford & Bingley by the government during the 2008 financial crisis, Sky News reported on Saturday. The timing of the proposed sale was unclear, with some officials saying it could take many months, according to Sky News.

The latest UK budget also will be announced this week.

BusinessDesk.co.nz

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