Yellen offers further clarity on a 2015 rates rise

Thursday, December 18, 2014

US investors were offered further clarity at yesterday’s FOMC press conference as Fed Chair Janet Yellen struck a decidedly more hawkish tone than previous meetings. Specifically, she announced that the Fed is likely to hold rates near zero at least through Q1 2015 but the central bank remains on track to raise interest rates. Further details outlining the economic conditions that would be necessary to initialise a rates rise were also given, with particular focus again on the labour market and inflation outlook. In the clearest message yet Yellen outlined that the rates rise would be gradual and may possibly not return to normal levels until 2017, leading many participants to anticipate higher rates in H2 2015 and price it in accordingly.

Both the DJIA and S&P 500 rebounded higher from the open, recovering much of the previous session’s losses while the dollar posted strong gains, as the dollar index rallied off 88.00, adding 1.32% yesterday against a basket of major currencies. Activity early this morning has since seen further interest in the greenback, driving the dollar index higher off yesterday’s close of 89.1333 as it tests levels towards 89.378. Yellen also offered her views on the unfolding economic crisis in Russia, stating that it would have little impact on the US economy, boosting confidence among market participants who had in recent sessions sold off risk assets.

Front month WTI prices managed to post modest gains for a second straight session yesterday, recovering 1.7% throughout the day to end the session just below $56.50/bbl on the encouraging comments made by Yellen. Intraday swings throughout the day saw losses extend towards $54.21 early on, as risk appetite during the European morning remained subdued before rallying strongly towards $59/bbl ahead of weekly EIA inventory data. However, these gains were short lived as once again hopeful market participants were left disappointed after official data indicated stockpiles declined by much less than market participants had expected. Crude stocks fell by 847K barrels w/w, much less than the 2.2m barrel decline expected by analysts according to a Bloomberg poll while stockpiles at Cushing, OK continued to build, increasing 2.92m barrels w/w after the previous week’s 1.45m barrel build. The supply glut continues to exert downward pressure on the crude oil market as bearish fundamentals prevent near term futures from any significant recovery.

The Swiss central bank has announced it will introduce negative interest rates in a bid to curb demand for the franc which has strengthened substantially against the euro. The EUR/CHF cross, which was trading towards 1.24 at the start of the year, has seen considerable flows in recent months, trading towards 1.2008 this week. However, beginning January 22nd 2015 the SNB will charge banks 0.25% for overnight deposits which will push the three month LIBOR rate into negative territory. The move will see the range for three month LIBOR widened to -0.75% to 0.25% from 0.0% to 0.25% currently as the SNB committed to prevent the franc from moving beyond 1.20 against the euro. The announcement saw the EUR/CHF immediately weaken 0.73% as it traded towards 1.2100 before settling just below the 100 day MA around 1.2065 as European markets opened.

DXY rallies strongly off 88.00 after FOMC press conference

DXY Curncy DOLLAR INDEX SPOT 2014 12 18 07 28 47

WTI posts modest gains but remains under pressure

CL1 Comdty Generic 1St CL Fut 2014 12 18 07 38 50

EURCHF jumps on SNB negative rates decision

EURCHF Curncy EUR CHF X RATE 2014 12 18 07 57 44

Events for today




Property Prices




Ifo Business Climate




Retail Sales




Construction Output




Jobless Claims




Philadelphia Fed Business Outlook




Leading Index




EIA Nat Gas

All times UK Local Time

Topics: US Fed, Crude oil, WTI, EUR, DXY, CHF
More from: Kash Kamal