Scoreboard: Fed clarity

Minutes from the US Federal Reserve’s last meeting show that committee members were concerned about misleading the market and signalling a more aggressive tightening schedule. Recall the message Fed Chair Janet Yellen gave after the meeting, stating that rates could rise six months after QE ends. Moreover, the lift in rate expectations signalled clearly that the tightening cycle might be more aggressive than planned.

The Fed’s communication strategy post-meeting was to play that down, and the minutes go further -- they noted that members were concerned at the time that markets would “misconstrue” the increase in the median rate projection. These minutes make it plain the Fed erred in its commentary and members are trying to make amends. As it turns out, the Fed is not becoming more hawkish. Needless to say, this revelation was the dominant force driving markets overnight.

Equities had a decent session on both sides of the Atlantic, but especially on Wall Street where gains were strong. At the bell the S&P500 rose 1.1 per cent (1872), the Dow was up 181 points (16,437), while the Nasdaq rose 1.7 per cent (4183). In Europe, gains were smaller with the Dax up 0.2 per cent, the CaC up 0.4 per cent and the FTSE100 0.7 per cent higher.

Forex markets pushed the US dollar lower again overnight and obviously the Australian dollar got caught up in that. At the time of writing the local currency was up another 20 pips or so on the US dollar, at 0.9386. The euro was up 70 pips to 1.3855, while the British pound was nearly 50 pips higher at 1.6794. Finally, the yen was little changed at 101.98.

Commodities ended mixed. Crude generally pushed higher, more so on WTI with a 0.8 per cent gain to $103.36. Brent was only up smalls -- about 0.2 per cent to $107.7. Otherwise in the metals space, gold was up smalls to $1310, silver fell 0.9 per cent and copper was off 0.2 per cent.

Rates whipped around a little on the Fed minutes but in reality they still traded on a narrow range -- 4 bps on the 10-year, and in the end the yield was unchanged at 2.69 per cent. The 5-year saw more action, down 5 bps in yield to 1.628 per cent. Similarly, the 2-year yield was off 3 bps to 0.363 per cent. Aussie futures ended mixed with the 3s down a tick to 96.96 and the 10s flat at 95.925.

Elsewhere, US wholesale sales surged 0.7 per cent in February, while inventories rose 0.5 per cent. Both good signs for growth. Then, over in Europe, Britain’s trade balance came in at a £9.1bn deficit in February. In contrast, the German trade balance came in at a €16bn surplus, with exports falling 1.3 per cent and imports rising 0.4 per cent.

In markets today, The SPI points to a 0.8 per cent gain for the All Ords. Otherwise the key data print for Australia will be employment figures at 1130 AEST. Jobs growth has surged recently following a lull last year. The expectation for March is that 2,000-3,000 jobs were created, while the unemployment rate is forecast to rise to 6.1 per cent.

Soon after at 1200 AEST we see Chinese trade figures, while Japanese machine tool orders are due this afternoon. Otherwise for the US, jobless claims, the monthly budget statistics and import prices are it. Finally in the central bank space, the Bank of England meets but isn’t expected to do anything.

Have a great day…

Adam Carr is a leading market economist.

Follow @AdamCarrEcon on Twitter.