Today marks the start of another FOMC meeting and heading into it, market expectations for a summer interest rate rise have waned considerably since the last time the Fed met.
By Peter Martin
Tuesday, April 28, 2015
That is because economic data has been surprisingly weak recently, failing to bounce-back as the winter weather has receded, and this adjustment in expectations has contributed to a decline in the dollar. Edginess over the Fed meeting has been evident early today in the FX market today, with a broad decline for the dollar: AUD/USD jumped 1.36% to 0.7964, EUR/USD rose 0.29% to 1.0923, while GBP/USD climbed 0.27% to 1.5278.
The strengthening of the pound against the dollar came despite the release of data showing a surprisingly sharp slowdown in the UK economy during the first quarter. The pace of UK GDP growth fell to 0.3% from 0.6% in the final quarter of last year, failing to meet the consensus estimate which had pointed to 0.5%. The annual pace of growth dropped to 2.4% from the fourth quarter’s 3.0%, and is now at its lowest since the end of 2013. This is only a preliminary report, of course, and the numbers could well be bumped higher in the next revision, but based on things as they stand, the situation is looking a little bleaker than the Bank of England’s recent growth forecasts and the chances of a UK rate hike look slim in the coming months.
US house price data released pre-market this morning came in stronger than expected. Case-Shiller’s 20-city Home Price Index rose a seasonally-adjusted 0.9% in February, maintaining the strong pace of gains seen in the month prior and exceeding the consensus estimate which had called for 0.7%. Year-on-year the change is now 5.0%, up from 4.5% seen in January, and continues a healthy trend of price rises, which have come despite signs of decline in other metrics for the housing sector. A report earlier this month showed housing starts stuck beneath the 1 million-unit annualized pace in March, with little signs of improvement despite more clement weather conditions.
Stocks opened little changed on Tuesday, though Apple ($AAPL) pushed to an all-time high following its bumper results. Shortly after the open, the Dow Jones was up 21 points or 0.12% at 18,059, while the S&P 500 Index was flat at 2108.9. Apple reported better-than-expected earnings and revenue after the market close last night and also announced an expansion in its capital return program from $130 billion to $200 billion.
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