Recap : More on the FOMC


A final note on yesterday’s FOMC press conference: A 6 month hiatus after QE ends is pretty reasonable if the Fed intends to hike at a rate of ~100bps a year. With 8 meetings a year, that implies one 25bp hike very 2 meetings, so to end the year at the median of 1.0%, the Fed will have to hike 3 times, which means the 5th or 6th to the last meeting of the year, or the 2nd or 3rd meeting of 2015. That implies either a March or April first hike. With QE at 55bn starting in April, it is expected to fall to 5bn by November. So QE will end either in November or December, which is between 3 – 6 months before the first possible hike according to Fed dots. So that looks pretty fair to me… so I don’t think Yellen will be taking back the ‘6 months’ comment in the near future, as some commentators expect. But then again, I don’t think it matters. The front end looks pretty fair now, as does the back end. The belly still looks vulnerable to substantial positive or negative economic surprises – one of which may actually be wage inflation. But that’s a hypothesis for another day.

Separately, here are a few charts from Blackrock today which highlights the bull story for equities – and also may explain why equities are holding up so well despite the hawkish Fed. Specifically that the equity risk premium remains very high:


  • Philly Fed: jumped to 9.0 vs 3.2 exp and -6.3 prev
  • Existing Home Sales: was stable at 4.6mm as exp
  • EU negotiators agreed Thurs on a blueprint for the planned banking union. A resolution fund will be formed over 8 years and the ECB will have primary responsibility for deciding when to resolve a bank.
  • Big move in USDCNY overnight. The dollar is 0.55% stronger at 6.2286.
  • Premier Li said Beijing would accelerate investment and construction plans to ensure growth doesn’t falter any further.
  • According to the data, foreign investors net sold ¥1.1trn of Japanese stocks: the volume of this net weekly sales was the largest since the data became available in 2005. Foreign investors net bought ¥15.8trn of Japanese stocks last year, however, they turned to be frequent net sellers of Japanese stocks in 2014. So far this year, they net sold ¥2.0trn of Japanese stocks.

Upcoming Data:

  • Fri: Canada Retail Sales, CPI, EU Consumer Confidence
  • Weekend: Kuroda Speaks, China Markit Flash PMI
  • Mon: EU PMI, US Markit Prelim PMI
  • Tue: German IFO, UKCPI, US Consumer Confidence, New Home Sales,
  • Wed: Germany GfK Consumer Confidence, Italy Consumer Confidence, US Durable Goods Orders, Markit US Services PMI, NZ Trade Balance
  • Thu: Italy Business Confidence, EU Money Supply, UK Retail Sales, US Jobless Claims, Pending Home Sales, Japan Unemployment, CPI, Retail Sales, UK Consumer Confidence