Ger30, UK100 and SP500 are CFD’s, written over the Dax30, Footsie100 and S&P500 Index futures:
In the pre-opening, European equities were trading higher. Initially, the European indices should react positively to the Fed meeting. The mining and oil sectors should lead this initial climb, because the valuations achieved by raw materials not only on Wall Street but also in the Asian session. However, among the many positive consequences of the meeting of the Fed stood a particularly negative for European markets: the appreciation of the Euro. This effect should penalize, in time, the European export sector. Among the most correlated with the Euro figure index DAX.
American indices closed higher, with investors reacting to a less severe statement from the Fed, than anticipated the day before. As we mentioned yesterday, one of the main points of the meeting was how many increases in interest rates is that the members of the Fed anticipated for 2016. On average, members of the Fed estimated two increases 0.25% of interest rates in 2016. This figure contrasts significantly with 4 advanced by members of the Fed at the December meeting. In addition, the Fed reduced its projections for GDP growth in 2016, from 2.40% to 2.20%. Inflation, excluding more volatile goods, is expected to be at 1.60%, below the target of 2% set by the Central Bank. The meeting statement acknowledged improvements in the American and international conjuncture economy since the January meeting. Still, the Fed did not completely eliminated the mention of the risks posed by the turmoil in financial markets and the slowdown in many economies, only used a softer tone in their description. In conclusion, the message and the posture of the Fed is less severe than investors anticipated. Among the raw materials, petroleum stood out valuing around 5.80%. In addition to the devaluation of the dollar and increased risk propensity of investors, the crude was favored by a stronger than expected decline in oil reserves. The meeting of the Fed eased the apprehension of investors in relation to interest rates but they will have to continue to monitor the economic data. Inflation, measured by the consumer price index, decreased 0.20% in January, matching economists’ forecasts. But at this stage, investors are tracking core inflation, ie the price level excluding the most volatile goods like food and fuel. In fact, the decline in inflation was mainly due to the drop of about 10% of fuel during the month of February. So, excluding these goods, core inflation rose 0.30% in February from the previous month and 2.30% over the same month of 2015, thus surpassing the goal of the Fed, which envisions an inflation close to 2%. The start of construction of houses increased 5.20% in February, reaching 1.18 million units (annualized number). The granting of building permits fell 3.10% in February, standing at 1.17 million. These data confirm the dynamism of the real estate market, but the recent downturn in the granting of licenses may signal, in time, a slowdown of this market.
The reaction of Asian markets to the meeting of the Fed was less enthusiastic than one expected. The gains did not exceed 1% and in Japan the Nikkei retreated 0.22%. The explanation for this behavior is due to the strong appreciation of the Yen against the Dollar, due to reduced prospects for interest rate hikes in the US.