Less than twenty fours following yesterday’s Fed announcement, and the big dollar is higher along with equities around the world. It is a risk-on time in financial markets in the wake of the first Fed interest rate hike in almost ten years. An initially skittish reaction morphed into euphoria as the market’s digested the Fed’s words and any lingering uncertainty had been exorcised from the marketplace. Mostly second and third tier data was littered throughout the overnight session so it’s all about the Fed for now – North America poised to keep the good times rolling with a higher open.
Overnight, the euro slumped about 1%, weighed down by a stronger dollar and less than stellar IFO data. German IFO data fell below expectations as the business climate, current expectations and current conditions all missed estimates. The market seems to be looking passed these numbers for now, as Germany’s DAX index surged higher by nearly 2% following bourses around the world. Sterling did it’s best to fight the greenback after much stronger than expected retail sales. It was reported that retail sales in the UK are up 5% versus one year ago, versus expectations of a 3.2% increase. On the month, British retail sales were higher by 1.7%. Despite these figures, sterling lost a bit of ground and is now trading below key psychological levels.
On the Fed’s historic announcement, the US dollar experienced a very volatile session in the hours that followed. While it was the “dovish hike” that many expected, policymakers still eye an appropriate rate of 1.375% by the end of 2016, suggesting a quarter-point move every three months or so. The Federal Reserve Open Market Committee projects inflation will reach its 2% target by 2018 but raised rates anyway, “given the economic outlook, and recognizing the time it takes for policy action to affect future economic outcomes.” This decision was unanimous and North American equities ripped higher following Ms. Yellen’s press conference as the uncertainty has been removed from the market – for now. The next Fed meeting will be held on January 27th.
Turning to the US, it is Thursday which means we get a look at the most recent jobless claims numbers. It is expected that 279,000 Americans filed for first time unemployment claims for the week ending December 11th. This would be a touch below last week’s 282,000 number and another strong result for the American labor market. Tomorrow, Markit releases its Composite and Services Flash PMIs for the month of December. Wall Street is hoping for results around 55.7 and 55.9, respectively, well above the key 50 level indicating expansion. The US dollar looks poised to continue its ascent and finish this year as it began 2015, on a higher track. Policy divergence with Europe, Canada and China will be an interesting theme and something to keep an eye on going forward.
The Canadian dollar made a new 2015 low before yesterday’s Fed announcement. Oil prices fell lower by 5% at one point yesterday afternoon, with WTI Crude slipping to the $35 level. The Loonie’s downward trend looks safe for now as the Fed appears ready for four quarter-point hikes next year while the Bank of Canada considers more accommodative policy. November inflation closes out the data calendar tomorrow with the market expecting a modest 1.0% rise over the same period in 2014. We get a look at October GDP and retail sales next Wednesday, but for all intents and purposes, the economic data has completed for Canada. Market liquidity should deteriorate over the next few days as Christmas and New Year holidays shove traders and participants to the sidelines. The CAD$ remains a sell on any rally with some expecting a jump toward psychologically important levels in early 2016.
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