Global Themes

Battle of the central banks begins

  • March FOMC decision tonight
  • Dutch hit the Election booths today
  • May expects Brexit sign-off in coming days
  • IMF encouraged by strong UK growth

FOMC Meeting

March FOMC meeting tonight
The much anticipated FOMC meeting is expected to deliver a 25 basis point hike tonight following firm guidance from Chair Janet Yellen and a host of other Fed members in recent weeks. This is to be followed by another four central bank meetings tomorrow.

There is a belief that risks which saw the central bank hold off on hiking rates in consecutive meetings last year have now passed. Global uncertainty, weak inflation and unsteady job growth all seem to now be well in check giving the Federal Reserve the green light to hike rates. Risks now seemed to be interpreted as upside with the US economy building momentum, potentially fuelled further by President Trump’s expansive Fiscal Policy plans.

With the Fed Futures pricing currently implying a 100% chance of a rate hike already, this on its own will not be likely to cause a large reaction. We will be looking for any further guidance as to when the next hike will come. At the last meeting three hikes were signalled for 2017 and as it stands the Fed will be well on track to achieve this. A move to perhaps imply that all meetings are now live could see more than three hikes this year and a stronger dollar, pushing the GBP/USD rate lower. Anything less than this could actually disappoint the market pushing GBP/USD higher.

Before the meeting tonight we watch out for US February CPI and Retail Sales this afternoon. These are both expected to be modest numbers with inflation dampened by a pull back in energy prices. We may see some reaction in the currency, however markets will likely look through this in anticipation of the rate announcement tonight  

Dutch Election

Dutch hit the election booths today. Voting will be open until 8pm UK time, with the first exit poll expected to be released in the minutes after. Overall result expected in the early hours of tomorrow morning London time.

Anyone with a Euro exposure will be keeping a close eye on this result tonight. It is seen as the first big test for continental Europe with regards to the populist uprising and will be seen as a gauge for the French and German elections later in the year. The two front runners are incumbent Mark Rutte and Geert Wilders whose anti-EU, anti-immigration and anti-Islam policies  have seen him surge in popularity. Rutte is currently leading in the polls but there are a number of parties in contention meaning that a coalition will need to be formed to create a ruling majority. Due to the complexity and number of parties involved it could be some time until this is all pieced together. 

Brexit

May expects Brexit sign-off in coming days
Theresa May has stated in a speech to the House of Commons that the Article 50 Bill will receive royal assent in the coming days.

The prime minister has also hinted that there may be a slowdown in Brexit planning saying that she is in no rush to begin the process of leaving the EU. She plans to return to parliament by the end of the month to give notification the Article 50 has been formally triggered. May took the opportunity to respond to Nicola Sturgeon’s calls for a Scottish referendum by calling for the UK to come together at this time rather than taking trying create division.

The latest speedbump is coming from EU officials who are reported to be waiting until June to begin formal negotiations on the terms of Brexit. This will erode some of the two years that May has to complete negotiations once Article 50 is triggered and could shift the balance of power back towards the EU. 

IMF

IMF encouraged by strong UK growth
Christine Lagarde, head of the IMF has said she is encouraged by the stronger than expected growth in the EU, UK and Japan.

Before the Brexit referendum the IMF was one of the many organisations warning against the negative impacts leaving the EU would have on the UK economy. Fears that the UK would face a recession and higher unemployment  seem to be easing and this has played a part in an upgrade to their global growth outlook for 2018. 




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