Tuesday 12 December 2017

Daily Market Update: Fed officials "closely monitoring" global economic and financial developments, while leaving interest rates unchanged

The Capitol in Washington is seen at sunrise, Tuesday, Jan. 26, 2016. (AP Photo/J. Scott Applewhite)
The Capitol in Washington is seen at sunrise, Tuesday, Jan. 26, 2016. (AP Photo/J. Scott Applewhite)

David O’Reilly

The Federal Reserve is “closely monitoring global economic and financial developments and is assessing their implications for the labour market and inflation, and for the balance of risks to the outlook,” the central bank said in a statement last night following a two‐day meeting in Washington.

The Fed omitted a line from the previous statement in December saying the risks to the outlook were “balanced.” Chair Janet Yellen and her Fed colleagues, explaining their unanimous decision to leave the rate unchanged, said that recent information “suggests that labour market conditions improved further even as economic growth slowed late last year.” Reiterating the interest‐rate outlook from the December statement, the FOMC said Wednesday that it “expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate.”

Since the Fed raised interest rates last month, unrest in financial markets and a weak outlook for global growth have left investors expecting a slower rise in borrowing costs. The median projection of policy makers’ forecasts in December called for four quarter point rate increases in 2016, however many market participants now expect just one or two.

Also released in the US yesterday was strong housing data, the commerce department said new home sales grew by 10.8% to 544,000 units last month, compared to expectations for a gain of 2.0% to 500,000. In addition for the third week in a row, mortgage applications increased, rising 8.8% from one week earlier, according to the latest data from the Mortgage Bankers Association’s weekly mortgage applications survey.

In the UK British banks approved the fewest mortgages for house purchases since May last month, though overall approvals were still up by almost a fifth on December 2014. The British Bankers’ Association said its members approved 43,975 loans for house purchase in December on a seasonally adjusted basis, down from 44,533 in November.

Irish residential property prices increased by 6.6% in the year to the end of December, that was a slight increase on the annualised figure in November when prices increased by 6.5%. It compares to an increase of 16.3% recorded in the twelve months to December 2014. Property price growth outside of Dublin continues to outpace that in the capital. In Dublin, property prices fell by 0.5% in December and were 2.6% higher than a year ago. Property prices in the rest of the country increased by 1.2% in the month of December and were 10.2% higher than a year before. In other news according to the Financial Times officials from the IMF and the World Bank are heading to Azerbaijan to discuss a possible $4bn emergency loan package in what risks becoming the first of a series of bailouts stemming from the tumbling oil price. However oil prices gained on Wednesday amid speculation about output cuts, a barrel of brent crude is currently 33.18.

To the day ahead, in the UK Q4 preliminary GDP is released at 9:30, this is the key data point in what is a quiet week of UK data releases. Markets expect 0.5% qoq expansion ahead of the previous 0.4%

In Europe economic and consumer confidence data is released at 10:00 with all survey data expected to be lower. Irish retails sales are released for December at 11:00, having previously seen a 2.2% monthly rise in November. At 13:00 German CPI is released with markets expecting a drop of 1% mom after no change previously.

In the US at 13:30 we will get initial jobless claims and durable goods orders. Claims are expected to drop to 281k from 293k while durable goods orders are expected to be down 0.5%. Finally at 15:00 US pending home sales are released with analysts expecting an increase of 1% from ‐0.90%.

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