Market Review - Fundamental Perspective - 14 June 2018

The Fed raised the target range for the federal funds rate by 25bp, as expected, and signaled two more hikes this year and three next, as the median projection for interest rates moved higher for 2018 and 2019
Although the increase in the median went against Barclays Research expectations in this meeting, the move brings the Fed’s appropriate policy path more in line with our official baseline outlook. We expect above-trend growth, modest inflation, and a declining unemployment rate to lead to two further hikes in 2018 and four more in 2019
The initial reaction of USD broadly higher and 10Y UST yields testing 3% once again was short-lived as concerns about US tariffs on China resurfaced (WSJ)
China’s central bank also held off from immediately raising borrowing costs following the U.S. Federal Reserve, a decision that came just as economic data for May showed that the economy is losing steam
The debate on the UK withdrawal bill continued yesterday, with the government defeating the modifications proposed by the Lords, albeit by making concessions
The thorny issue of the Irish border remains, and according to the latest Barclays Research survey, investors seem skeptical that UK and EU negotiators will reach an agreement over the issue in a timely manner
Attention now turns to the ECB meeting later today. Barclays Research do not expect policy changes, with the ECB likely only discussing policy options, and keen to see more data

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