All eyes on Yellen's first Fed meeting as chairwoman

Wednesday, March 19, 2014

US markets posted steady gains ahead of the FOMC meeting as the dollar index remained under pressure, struggling to breakout significantly above 79.50. Market participants continue to speculate on whether the Fed will change guidance and drop the threshold unemployment rate which would need to be reached before considering raising interest rates. Under current forward guidance the Fed has indicated that unemployment would need to drop below 6.5% before it would consider raising interest rates. However, with the recovery in the labour market outperforming slower gains in manufacturing and industrial growth market participants expect policy makers to ease off slightly with a more dovish outlook.

Asian equity markets faltered during overnight trading with Japanese equity markets posting mixed results after data showed the trade balance exceeded analysts’ expectations despite closing considerable ground after last month’s drop. The deficit narrowed to 800.3bn yen in February from a revised figure of 2,791.7bn yen the prior month as the economic recovery continued to face considerable headwinds as the market anticipates a sales tax increase in April which will put further pressure on domestic demand. A weaker yen, pulling back from 105 against the dollar at the start of the year towards 101.50 currently, has struggled to boost exporters in recent months as imports exceeded exports for the 20th straight month, increasing 9% y/y in February.

Chinese stocks fell on property market concerns and a weaker yuan as the collapse of a private real estate developer increased concerns of further defaults as the economy slows. Steps taken by the PBOC to keep money market rates low and stimulate borrowing have seen the seven day repo rate drop as low as 2.3% earlier this month; however rates have increased towards 3.42% as credit risk increases.

DXY unable to breakout above 79.50 as attention shifts to FOMC meeting

DXY Curncy DOLLAR INDEX SPOT 2014 03 19 08 29 03

Japanese trade deficit narrows, but still exceeds expectations 

JNTBAL Index Japan Trade Statis 2014 03 19 07 57 29


Events for today

0930

UK

Feb

Claimant Count

0930

UK

Mar

BOE minutes

0930

UK

Feb

ILO Unemployment

1430

US

w/e

EIA Energy Stocks

1800

US

Mar

Fed Rate

All times UK Local Time

Economic Market Calendar

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