Market movers today
The main event of the day is the FOMC meeting , the first with Jerome Powell as Chair. We expect the Fed to increase its target range by 25bp to 1.50-1.75%, as the economy is strong. Among other things, Powell’s testimony from February points to a continuation of the gradual hiking cycle, as he expects inflation to increase and stabilise at 2%, so he does not view the economy fundamentally differently from Janet Yellen. As everyone expects a hike, the updated ‘dots’ are more important and we expect the Fed to maintain the three hikes signal for this year but show more confidence in the signal, as more of the dovish members now seem to support this. This has deepened in March 2018 (see FOMC Preview 6 Sticking to three rate hikes signal , 16 March). We will look out for further Fed comments after the meeting, when individual members usually express their own outlook. At the moment, two Fed speeches are scheduled.
On the data front, there are not any significant economic data releases today.
Selected market news
Financial markets are in wait-and-see mode ahead of tonight’s Fed meeting. Asian equity markets are slightly up this morning, while the USD dollar index, DXY, is slightly weaker. Asian energy stocks were boosted by the higher oil prices, which rose slightly amid market speculation that US President Trump and Saudi crown Prince Mohammed Bin Salman discussed possible US withdrawal from the Iran nuclear deal at a meeting at the White House yesterday. Meanwhile, the US equity markets rebounded yesterday following the sell-off the day before, driven by the Facebook scandal about releasing 50 million user account to an analytical firm that helped President Trump win the election.
The UK pound is under pressure ahead of the Bank of England meeting and the start of the EU summit tomorrow. The main driver appear to be the slightly lower inflation data released yesterday, which put less pressure on the BoE to hike. Both CPI headline and core inflation were slightly weaker than expected at 2.7% and 2.4%, respectively. We still maintain that a rate hike in May is on the cards.
Fitch reaffirmed its ‘A+’ rating for China on the country’s strong external finances and said the implications of the removal of presidential term limits remained uncertain while trade tensions with the US pose a downside risk. The ratings agency said its outlook for China was stable as improved growth over the past year had “enabled the authorities to address financial risks through tighter regulations and slower credit growth”. However, Fitch cautioned that it remained to be seen if this shift would continue to prioritise “stabilising debt levels over using credit-driven stimulus to meet growth targets”.