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What’s driving the markets till the end of 2017?
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Loading...Investors have a busy week ahead for updates from central banks as 2017 draws to a close. The European Central Bank and the Bank of England are slated to release policy decisions on Thursday, and while no changes are expected, markets will look for commentary about the banks’s outlooks for stubbornly low inflation and the overall vigor of the global economy.
But a move is widely expected from the Federal Reserve on Wednesday. Traders are looking for the federal-funds interest rate to be raised by a quarter-percentage point, to 1.25%-1.5%. That would mark the third rate increase this year. Fed Chairwoman Janet Yellen, who will soon be leaving the central bank, will host her final post-decision news conference Wednesday.
New Zealand, meanwhile, will receive a new central bank chief in Adrian Orr, who was named on Monday to lead the Reserve Bank of New Zealand. The kiwi, as the New Zealand dollar is also called, jumped following the announcement. The 54-year-old will begin his five-year term as the bank’s governor on March 27.
“Excellent choice. A person considered to be an ‘internal’ candidate given his extensive RBNZ experience, but also has widespread “outside” experience including a decade as the CEO of the successful sovereign-wealth fund NZ Super Fund,” wrote Annette Beacher, chief Asia-Pacific macro strategist for FX and rates at TD Securities, in a note.
Even though Orr is a less well known central banker for the international FX community, the uncertainty premium over who will be at the head of the RBNZ has been reversed.
Read: Fed getting ready to hike as retail sales, but not inflation, picks up
What else are strategists saying?
“Given that the [Fed’s anticipated] hike is already over 98% priced in, it is highly unlikely to move the market when it happens. Instead, investors will be paying close attention to the pursuant statement, growth forecasts and press conference, in an attempt to gauge the continued path for rate hikes in 2018 and whether the path is being impacted by the lack of a resolution to the Fed’s inflation mystery,” Fiona Cincotta, senior market analyst at City Index, wrote in a note.
Even as the U.S. economy is close to full employment, “average hourly wage refuses to moves toward the 3%-4% [rate], which the Fed considers healthy, and inflation refuses to budge toward the Fed’s 2% target,” said Cincotta.
“Fed members are likely to incorporate fiscal stimulus effects in their forecasts, so small upward revisions to real GDP growth are likely,” said Natixis Americas chief economist Joseph LaVorgna. “Yet, the median of the dots should remain unchanged in 2018, consistent with three hikes, because core inflation will remain under 2% in the near-term.”
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