Market Update | June 14, 2018

Macro View

Daily Insights

  • Fed follows through with a hike and a hawkish tilt. As expected, the Federal Reserve (Fed) raised the fed funds rate 25 basis points (0.25%) to a range of 1.75-2.00%, as well as its guidance for future hikes (the “dot plot“), with the median dot pointing to four hikes total in 2018 compared to three total prior to the meeting. The change in expectations comes as the economy picks up steam and inflation slowly grinds higher. Fed members also raised their estimates for 2018 gross domestic product (GDP) growth, lowered their unemployment estimate, and raised their inflation estimate. The hawkish change to forecasts and statement language, and the tone of the press conference, indicated to markets that the Fed may likely hike during its September meeting, with the market currently pricing in an 83% chance of a hike in September.
  • Dovish taper from the ECB? The European Central Bank (ECB) announced it would end its bond purchases (so-called quantitative easing) by year end as expected, though some had anticipated that announcement might come in July. The move implies some comfort with the economic outlook in the currency union, which we would view positively despite substantial evidence Europe’s economy is slowing–on top of tariff risk. On the other hand, in a slightly dovishdevelopment, ECB Chief Mario Draghi pledged not to raise interest rates until at least summer 2019 and that the benchmark target rate will remain at zero as long as is necessary thereafter, depending on the data. This balanced message has led to some modest weakness in the euro and slightly lower European yields early this morning.
  • Chinese data reflect slower growth in May. The Chinese economy has been widely expected to slow, partly due to the government’s efforts to prevent overheating. May data reflected that as industrial production, fixed asset investment, and retail sales all missed expectations and slowed from April. The data opens up the possibility of more stimulus, and kept the People’s Bank of China from following the Fed’s rate hike with one of its own overnight, but the consensus 6.5% GDP growth pace remains a solid and achievable target for the world’s second largest economy.
  • Strong retail sales for May point to accelerating second quarter growth. Consumer demand picked up steam in May as retail sales rose 0.8% versus April, double consensus and up 6.4% year over year. The increase was broad based with 10 of 13 categories showing growth, including building materials with a 2.4% increase. Control group sales, which are used to calculate GDP, have risen at a three-month annualized pace of 5%, up from 2.8% in April. The data are a clear sign that consumer spending has picked up nicely after a soft first quarter. A healthy job market, wage gains, and tax cuts continue to provide support.
  • Jobless claims lower than expected. New applications for unemployment benefits fell unexpectedly last week, coming in at 218,000 vs. expectations of 224,000. The less volatile four-week moving average of claims also dipped slightly to 224,250. The labor market is considered to be close to full employment and the data further affirms our view of a strong and gradually tightening labor market.

Monitoring the Week Ahead

Click Here for our detailed Weekly Economic Calendar


  • Weekly Jobless Claims (Jun 9)
  • Retail Sales (May)
  • Germany: CPI (May)
  • France: CPI (May)
  • UK: Retail Sales (May)
  • ECB: Main Refinance Rate
  • BOJ: Policy Balance Rate



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