December 16 – It’s Fed Day in the markets. All the world watches as the Fed puts the final touches on its highly-anticipated monetary policy statement due to be released at 2 p.m. EST today, with a press conference by Chair Janet Yellen 30 minutes later. The markets continue to anticipate a 25-basis point rate hike – the first since 2006 – largely because Fed statements have built those expectations in recent months. Conditions are less favorable at this point than they were earlier in the year, but the Fed doesn’t want to disappoint market expectations.
However, the greater focus now shifts to the surrounding statement from the Fed as the markets parse words seeking indications of when the next rate hike will come. Global markets will particularly be following Janet Yellen’s press conference for indications of future Fed direction. Yellen is known as a dove, but expectations of a rate hike increased when her comments turned more hawkish in recent weeks and months. The markets will now be listening to see if she maintains that hawkish stance or returns to her dovish nature, which is what I anticipate.
Global stocks moved higher on expectations that the Fed will push rates higher. Failure to do so would suggest that the U.S. economy is in worse shape than currently believed. As such, global stock traders are currently interpreting expectations of a rate hike as confidence that the economy is finding some firm footing. European stocks found added support from data showing that European companies are hiring at the fastest rate in four years, as that region’s economy starts to find some firm footing.
The dollar has traded a very narrow range near unchanged thus far today as the currency market awaits today’s Fed statement. The currency market has been pricing in expectations of a rate hike for the past 17 months, making it the most highly-anticipated rate hike on record. The question is, where do we go from here? The answer to that question will likely be shaped to a great extent by how traders interpret comments from the Fed following today’s statement.
November housing starts rose to 1.173 million homes, slightly beating expectations of 1.141 million and up from 1.062 million in October. The data counters Tuesday’s more bearish home builders index that showed declining interest in building new homes. Housing permits surged 11% in November, but that reflected a 27% jump in multi-family housing versus just a 1.1% for single-family units. Single-family home permits are up 9.0% year-on-year, while permits for multi-family units is up 36%, yielding a combined 19.5% increase.
Congressional negotiators reached an agreement last night to end a 40-year ban on U.S. crude oil exports. The agreement still must be voted on by both houses of Congress, but it’s having little impact on the markets today, which are focused on the Fed decision. The current spread between West Texas Intermediate and Brent crude oil doesn’t favor exports at this point.
Rainfall deficits continue to build over the northern half of Brazil’s soybean belt, although rains have been timely enough to this point to maintain production potential over all but the northeastern 10 to 15% of the belt. Limited moisture this week continues to allow the deficits to build. An uptick in showers is expected to once again come just in time to maintain yield potential Monday to Wednesday of next week, with good model support this morning. Yet, failure of those rains to verify would likely result in crop stress spreading over a third of the belt. That possibility has been with us for some time, with the rains thus far coming just in time. Yet, the possibility that they will falter should provide underlying support as we approach the critical growing phase for crops.
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