European markets are trading higher this morning as traders are absorbing the aftermath of the FOMC minutes released last night. The Fed assured that a rate hike is a very high probability during the next month. However, how much surge will be in that interest rate is a very different question and no one knows the meticulous answer for this. But, what we do know is that the pace will be gradual or at-least that is what the Fed telling the markets for now. Three FOMC members established yesterday that the Fed will not rush to bring the rates back to their normal level. They reiterated that the pace will be modest when it comes to raising the interest rate.
One element which the market undeniably wants to see is assurance from the Fed that they are unquestionably poised in their approach and they have no qualm that this is the correct step given the health of the economy. Nonetheless, the comments which came from Atlanta’s Fed were certainly not in line with the above idea. His comments were in-line with destiny, faith or perhaps their foundation were more built on hopes. As a trader, this is not music to your ears, but in-fact it creates more uncertainty as you start to reason that the person in command does not know what he or she is doing and completely unaware of the consequences.
Another interesting element in those minutes were about the fed willingness to add more stimulus if there is any need for it. In a nutshell, what the Feed said was that look if raising rates makes the economic situation unbalanced- we can go back to the old days and start printing some more money. At the same time, what also become clear from these minutes were that the Fed feels less anxious about the economic fallout from the emerging markets and they more assertive that the route which started in China has lost its steam and the economic conditions are much more stable now.
Back in Asia, the bank of Japan kept its monetary policy unchanged and said that they feel content with the pace of economic growth and how the inflation is performing. They believe the economic situation is becoming much healthier and hence there is no need to change their policy currently. What this has triggered is more strength for the yen against the dollar, but the over all trend for the USD/JPY remain towards the upside.
In terms of economic data, we have the UK retails sales number due later this morning and the forecast is not very optimistic. The expectations are for -0.4%, which is much weaker as compared to the previous reading of 1.9%. If the final number does show more strength than the forecast, we could see another leg higher for the sterling against the basket of currencies. As for the US, we have unemployment claims and Philly Fed manufacturing index numbers due later this afternoon and the forecasts for for 272K and 0.1.