Hatches Held Firm

A two week supposedly definitive period which was supposed to provide sufficient guidance for traders to feel confident passed by with several questions unanswered. Obviously, we need some PIGs working in government to get that transparency bar off the floor...There were three major events in the past week that drove market sentiment:

FOMC rate hike

MPC meeting

Dutch Election.

The FOMC met and confirmed the least surprising monetary policy decision ever. The 25bp hike was both totally priced into the market and almost confirmed by Fed Officials during the lead up to the meeting.

Advance guidance is all well and good but where is the drama and excitement that led us to be captivated by the market?

The drama was provided by the reaction of the dollar to the news. In a classic “buy the rumor(?) sell the fact” maneuver, the currency fell by almost 1% against a basket of its principal trading partners.

The MPC meeting in the U.K. was characterized by a single dissenting vote on interest rates. The dissenter Kristin Forbes is an American independent member of the committee. She is well known for being more hawkish on interest rates than her colleagues. Also, since she is due to leave her position when her four-year term ends on June 30, it was entirely predictable that she would do more than providing a few soundbites as a “parting shot.”

The reaction of the pound was anything but predictable. It gained close to 2% against a dollar which, as we already mentioned, was languishing in post-FOMC angst. A 1% rise against the Euro was also significant since the Euro was also gaining. More on that to come!

The Government is now ready, willing, and able to trigger Article 50 of the Lisbon treaty formally resigning from the European Union.

It just goes to prove that no matter what political machinations are played out in the markets, good, old-fashioned monetary policy decisions win every time.

The collective sigh of relief in Brussels following The Netherlands General Election could be heard around the world. While there was only ever a very slim chance that the Dutch would embrace populism/nationalism in the same way as the British and Americans, but given what has gone before there was a certain amount of trepidation. And here we were dreaming of how many PIG memes we could create using a Wilders & Trump theme. The hair quips alone would have given us material for months. But alas…

Mark Rutte the incumbent Prime Minister, who had found himself engulfed in a diplomatic row with Turkey (conspiracy theory anyone?), extricated himself very skilfully which probably gave him the final push to achieve an extremely positive result in what is a very Liberal country.

Political eyes now turn towards Paris and the French election which is held over two weekends; April 23rd and May 7th.

Sunday nights are often a very exciting time to start the trading week. This PIG has seen some major events take place when liquidity is thin and market changing events have taken place over the weekend.The euro gained against the slightly sickly dollar following the election but we now start again with another set of data releases, political pronouncements and monetary policy decisions to chew over.