Twas the ninth night before Christmas, when all through the bourses,
Not a creature was stirring, not even the bears,
The stockings were hung by the chimney without care, (following the Christmas party’s)
In the hopes that Janet Yellen and the Fed would be there.
It could go down as the most dovish rate hike in history! Last night the Fed raised rates by the expected 25 basis points. Fed chair, Janet Yellen then went on to mention twice in the statement after the announcement that future hikes would be gradual and depended on actual and expected progress towards their inflation goal. So watching the data, ring any bells?? The markets will now get back to watching incoming data to shape forecasts and stop spending millions of man hours talking about it!!
As expected the US Treasury curve flattened and the stock market, the Dow Jones, closed up 1.28%, the US dollar (measured by the DXY Index) moved ~ 1.25% higher; so very muted across the board.
Our expectation is for two further rate hikes, possibly next year, followed by a prolonged period with the Fed monitoring economic data. We have maintained, and still are of the opinion that there are massive downwards risks in the global economy and that a stalling of the US economy is an odds on bet. Therefore our positioning in long duration, compared to our peers, and the much higher credit profile (A3), concentrating in quasi-government and sovereigns issues by wealthy nations will be maintained. That is until the risks are fully priced into lesser credits, which should then offer an opportunity for diversification from our current stance; but we are not anywhere close to value yet according to our models.
The markets are expected to be extremely quiet now until January 4th and so from the whole team we wish you all a very happy holiday, and a prosperous new year. Speak again in January.