Market update (14 June 2018)

Jun 14, 2018 Written by Gavin Pannu, MSTA, CFTe

The Federal Reserve raised interest rates by 25 basis points as expected. The statement pointed to a more optimistic view on economic growth and higher inflation expectations. The committee said two more rate hikes were appropriate, bringing the 2018 total to four hikes.

With the 0.25 percentage point increase already priced in, financial markets were looking for how aggressive the FOMC would be in setting monetary policy for the rest of the year. Overall the statement itself featured multiple instances of more hawkish language and the dot plot showed a single member shift the estimate from 2.25 percent to 2.5 percent.

UK data raised concerns once again over the health of the UK economy, Inflation numbers remain constant at 2.4%. Given the surprisingly soft manufacturing numbers early in the week, plus wage growth unexpectedly ticking lower. This may hinder the prospect of a rate hike by the bank of England in August.

With the World Cup beginning today and the first game being Russia vs Saudi Arabia, let’s discuss oil. Both have been encouraged by the US to increase production due sanctions and economic troubles with Iran and Venezuela to maintain production levels, but opposition continues to grow with OPEC’s second largest producer, Iraq’s oil minister stating the production cuts have not yet achieved the intended objective of balancing the oil market. Despite opposition from some OPEC members both Russia and Saudi Arabia are already showing intent to raise output.

Today, Investors will shift their focus to the ECB policy meeting which follows recent hawk talk from key members.