Fed Minutes: Little Desire to Shift The Language

The minutes from the Fed October 28-29 FOMC meeting showed that policy-makers saw little reason to shift the language in the post-meeting statement. Over the “considerable time” phrase there were plenty of opinions and some participants preferred to eliminate language in the statement. These participants were concerned that such a characterization could be misinterpreted as suggesting that the Committee’s decisions would not depend on the incoming data. However, other participants thought that the “considerable time” phrase was useful in communicating the Committee’s policy intentions or that additional wording could be used to emphasize the data dependence of the Committee’s decision process. I believe that since there was no press conference following the October’s meeting, it would be difficult for the Committee to remove this phrase without giving further clarifications. This could happen at their December meeting, which is associated with a press conference.

In discussing economic developments abroad, participants pointed to a somewhat weaker economic outlook and increased downside risks in Europe, China, and Japan, as well as to the strengthening of the dollar over the period. Nonetheless, many participants suggested that the share of external trade in the US economy is relatively small, thus the effects of changes in the value of the dollar on net exports are modest. Several participants also judged that the decline in the prices of energy and other commodities as well as lower long-term interest rates would likely provide an offset to the higher dollar and the weaker global growth. They argued that the US recovery remains on a stable path.

Market reaction was limited following the minutes, the S & P 500 jumped 0.30% at the release only to retreat in the following hour and end the day virtually unchanged from TUESDAY ’s closing. Major currency pairs reacted somewhat on the news, EUR/USD touched 1.2600 but fell back to take sideways, GBP/USD bounced briefly only to set aside the gains and gyrate around 1.5670. The USD/JPY was the only currency that kept its strength breaking above 118.00.

Overnight, the preliminary HSBC China manufacturing PMI fell to 50.0, down from the October final reading of 50.4 and below expectations of a decline to 50.2. The six-month low reading, just in between contractionary and expansionary levels added to concerns over the nation’s slowdown. The NZD and AUD weakened marginally at the release of the figure, but recovered immediately in the following minutes to trade unchanged against the dollar.

As for today’s activity

  • PMIs will take center stage. Eurozone’s preliminary PMIs, also for November, are released just after the figures from Germany and France are announced. The bloc’s manufacturing PMI is projected to remain above its 50 line, while the manufacturing PMI from its strongest economy, Germany, is anticipated to move slightly further into its expansionary territory. Eurozone’s preliminary consumer confidence for November is also due out.
  • In Norway, GDP for Q3 is expected to decelerate adding to the recent batch of poor data coming from the country.
  • In the UK, retail sales excluding gasoline are expected to have risen in October, a turnaround from the previous month.
  • Later in the day, we get the US preliminary Markit manufacturing PMI for November and the Philadelphia Fed business activity index for November. Existing home sales for October are also coming out and the forecast is for the figure to show a marginal decrease. Following Wednesday’s mixed housing data, existing home sales should shed some light in the recent housing activity. The CPI for October is forecast to have decelerated, adding to concerns whether the Fed is on track to meet its inflation target. Initial jobless claims for the week ended on Nov. 15 and the Conference Board leading index for October are also coming out.
  • We have three speakers on Thursday’s agenda. Riksbank Deputy Governor Martin Floden, ECB Executive Board member Yves Mersch and Cleveland Fed President Loretta Mester speak.

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