Wednesday June 17

Stocks rise as it appears that interest rate hikes are not imminent. The S&P and the Dow both rise 0.2% to 2,100 and 17,935 respectively. Janet Yellen says that more improvement in the labor market is necessary before tightening begins. The Fed sees the economy expanding moderately, as it expectedly downgrades its growth forecast between 1.8 and 2% (which was 2.7% as recently as March). Following her statement, the 10 year yield reverses its course for the day and ends unchanged at 2.31%. Markets are of the consensus that the Fed is likely to increase interest rates in September with subsequent increases being gradual. Still there are 2 hikes priced in for this year. The dollar index falls 0.7% and the 2 year yield loses 3 basis points to 0.66%. Greek stocks resume their decline 3.2% bringing their loss to 17% over the past four days. The 10 year yield was up 10 basis points to 13.03%. The euro appreciates on the dollar’s weakness to $1.1337.

Janet Yellen insists that tightening will follow a gradual progression. In her view the economy has regained momentum and she still suggests that a September rate hike is on the table. She wants to see further improvement to the labor market. The updated dot plot suggests an even shallower tightening trajectory than before. On a positive note, she cites strong consumer consumer spending growth, housing, and employment markets. Both exports and investment are still lacking. The majority of the FOMC supports only one rate hike this year, as the committee acknowledges the situation in Greece. The dot plot suggests that rates at the end of 2016 will be 1.625% which was slightly lower than the previous projection. The year end estimate for 2017 was also slightly lower than it was previously predicted to be. The Fed keeps its dot plot for 2015 year end at 0.625% which implies two rate hikes this year. It is still too early for traders to commit to tightening in September.

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Wednesday June 17

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