Wednesday, April 8, 2015

FOMC minutes released | Anti-climax in the Kremlin

The minutes of the March meeting of the US Federal Reserve seem to confirm that core interest rates in the US are on the way to a rise, but indications of the timing are as elusive as ever. According to the minutes, some members want to see rates going up as early as this coming June, others want to wait until the end of the year and yet more do not want to see any rises at all until 2016.

The matter of core interest rate rises in the US is firmly bound up with inflation expectations. The stronger dollar and low energy prices are regarded by FOMC members as keeping the rate of price rises suppressed. On the other hand, an improving trend in employment (the recent weaker than expected Non-Farm payrolls single data point notwithstanding) and prospects of growth in the global economy, which would lead to the US “importing” inflation, are seen as drivers for it.

The bond market has apparently taken the view that rate rises are some way off. The yield on treasuries has been softening since the actual Fed meeting in March and there is little suggestion that the minutes will have changed this tendency. In the meantime the US dollar shows few signs of weakness, but this could reflect more on the fate of its global counterparts than on the Greenback itself.

Through all of this the EURUSD pair has recently decided to maintain a range-bound profile, between 1.10 on the upside and 1.07 on the downside (see chart below). This has been so since the last weeks of March and for the opening week of this month. The exchange rate is still well below the 200 day Exponential Moving Average (EMA), which reflects the dominant downtrend. Price only needs to proceed sideways in this manner for long enough, so that the 200 day EMA comes down to meet it, for it to conform to the principle of reversion-to-the-mean. And the definite feeling in the market is for further declines.

Anti-climax in the Kremlin

So far, the visit of Alexis Tsipras, Greek PM, to Russia, has been characterised by what can only be described as anti-climax. The Guardian newspaper of England is covering it well. It has so far only been able, however, to report that the joint press conference with Vladimir Putin and Mr. Tsipras was late starting and that Tsipras repeated his refrain about sanctions against Russia being a ‘road to nowhere’. He seems to have got little enough in return. A rumoured possible relaxation of the Russian ban on Greek food imports, which has been put in place in retaliation for EU sanctions against Russia over Ukraine, was in the event ruled out by the Russian president, who said that he could not make any exceptions for any state that was (remained?) a member of the EU.

Greece was lauded as a tourism destination for Russians by the president, who also said he was puzzled as to why there has been so much interest in the West in the Greek Prime Minister’s visit. Is Vlad trying to tell us (and the Greeks) something?

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