20141218 – HAPPY HANUKKAH & MERRY XMAS FROM THE FED!!

Good morning

If you are a parent I am almost sure your kids have seen the movie “Frozen” a 100 times and know all the songs. The headline song “Let it go, let it go” i guess SAYS IT ALL after last night’s FED meeting. In other words let the USD go, let the USD go bla bla bla.

Before I get into the comments for today allow me to recap on yesterday’s blog and I quote: ” They ended their taper in October, but maintained their guidance of rates low for a considerable period of time, but in speeches several governors, and key personnel have hinted that, with the current pace of employment growth, rates would have to rise in the near future. This could be the big announcement this evening – an end to the use of the phrase “considerable time”. There is a discrepancy in the interest rate path that the Federal Reserve anticipates compared to the market. The central bank expects rates to rise more quickly than the market does. That gap needs to close – there’s an orderly way to do this, and there’s a disorderly path, currently I fear the latter outcome seems more likely”.

In the FED statement last night, they moved away from the use of “considerable time” in its policy rate guidance to a message of “patience”. In other words the gates have opened to a rate hike at any time and could be announced outside the FOMC meetings. FED Chairwomen Yellen, noted that the FOMC expects the declining oil prices to have a transitory effect on inflation and stimulate growth. The FOMC said it “can be patient in beginning to normalise the stance of monetary policy”, showing its willingness to hold back on changing its rates. The changing of the wording has given economists the results they were looking for. As we at ParityFX have noted many times, a rate hike in the US will come in the summer of 2015.  FED Pres. Yellen continued “This new language does not represent a change in our policy intentions.” In other words we happy with the way things are moving in our economy and don’t be surprised if we surprise the market and hike rates when they were least expected.

The change in the wording sent US stocks into the black and then some. S & P up 2.04%, Dow up 1.69%, NASDAQ up 2.12%, Nikkei up 2.32% and European bourses already up over 1.25%. The USD shot through the roof with the EURUSD moving from 1.2485 to 1.2300, GBPUSD 1.5725 to 1.5575, AUDUSD 0.8275 to 0.8170 to name but a few. As we commented in our blog yesterday, we have maintained for some time that the case for dollar strengthening is sound, and in the bigger picture we stick with that view. if you are a follower and read this commentary daily you will know going to July this year we have been going on and on AND ON about the case for a strong USD calling for a target of 1.2200 (updated from 1.2000) on the 31 December. The HIGH for the day has been 1.2278 (EURUSD). Ok granted we have not “hit” my level yet, but you have to admit we hit a HOME RUN!! Eat your heart out BARRY BONDS (National Baseball Hall of Fame).

Having spoken to various clients over the past few weeks I have advised them that they MUST hedge their USD (mainly) purchases URGENTLY because of our opinions on the USD. Last night simply reinforced what we had said. The USD is king. The USD will remain king. Don’t mess with the USD!!!

We highlighted yesterday the plight of the RUB. Of all the oil exporters, Russia has endured the worst of the sell-off. The fall in oil prices and the sharp depreciation of the RUB (from 35.00 mid-year), combined with the sanctions against Russian entities limiting access to international capital markets, have raised concerns about a surge of defaults. Some of the recent moves may even invoke memories of the 1998 Russian crisis, though I would imagine the CB and Politburo would move heaven and earth to avoid such a situation. The Russian CB intervened heavily in the FX markets yesterday containing the fallout and bring the RUB back to “normality” (61.00 as I write this). Bottom line, things pretty much got out of hand and the CB had had enough. They HAD to show their hand and stop the rout. They have achieved this FOR NOW. The markets on the other hand still smell blood so don’t be surprised if we see another attack.

So much for a quiet December!!! Let it not be said but I told you so.

Have a great day ahead and let’s be careful out there.

13 thoughts on “20141218 – HAPPY HANUKKAH & MERRY XMAS FROM THE FED!!”

  1. I’ve been browsing online but I by no means found any attention-grabbing article like yours. It is pretty value sufficient for me. Personally, if all site owners and bloggers made just right content material as you did, the net might be much more useful than ever before.

  2. It’s awesome designed for me to have a web site, which is helpful designed for my knowledge. thanks admin

  3. Remarkable issues here. I am very glad to look your post.
    Thanks a lot and I am looking ahead to contact you.

  4. Wow! Finally I got a blog from where I be able to in fact get valuable facts concerning my study and
    knowledge.

  5. I enjoy looking through an article that can maake peopole think.

    Also, thank you for allowing for me to comment!

  6. Everything is very open and really clear.It was really informative. Your site is very helpful.
    Thank you for sharing!

  7. I blog quite often and I genuinely appreciate your content.
    This great article has really peaked my interest.
    I will bookmark your site and keep checking for new
    details about once per week. I subscribed to your Twitter Feed
    as well.

  8. There is definately a great deal to learn about this subject.
    I really like all the points you made.

  9. If you are going for most excellent contents like I do, simply visit this web page all the time since it gives feature contents,
    thanks

  10. Greetings! Very useful advice within this post! It is the
    little changes that will make the greatest changes.
    Many thanks for sharing!

  11. Hello There. That is an extremely smartly written article.
    I’ll be sure to bookmark it and come back to learn more of your helpful info.
    Thank you for the post. I’ll definitely return.

Leave a Reply to Derrick Cancel reply

Your email address will not be published. Required fields are marked *