Market Review – Fundamental Perspective 22 March 2018

Global equity markets had a quiet session yesterday in the build up to the Fed meeting and as was widely expected, the Fed delivered a 25bps rate hike and steepened the policy rate path across its projection horizon. However, the meeting was perceived as slightly less hawkish than the market expected hence US Treasury yields broadly fell whilst USD weakened across the board.
The FOMC statement indicated that the committee’s outlook for the US economy has improved since its January meeting and seven members now expect more than three rate hikes in 2018 whilst eight members expect three hikes or less.
Oil prices continued to rally yesterday after data showed a large drop in US crude inventories and overnight news that Trump is due to sign a presidential memorandum “targeting China’s economic aggression” today at 16.30 London time put some pressure on risk assets.
GBP had another strong session thanks to a stronger than expected set of employment data which showed an uptick in average weekly earnings (2.8% 3m/y) and lower unemployment.
GBPUSD broke above 1.4100 with the help of a weaker USD and 1.4100 now acts as short-term support with resistance at 1.4275 and 1.4350.
The Brazilian central bank delivered a 25bp cut in the Selic rate yesterday as expected whilst the RBNZ stayed on hold, flagging downside inflation risks.
Focus today will be on the BoE MPC meeting at 12.00 and the bank is widely expected to keep interest rates unchanged whilst reiterating its recent hawkish rhetoric. Barclays Research expects the vote to come out at 7-2 in favour of maintaining the policy status quo with Saunders and McCafferty the most likely to dissent in favour of a rate hike.

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