Weening a country, or market, off easy money is tricky, even when it’s done slowly, as the Federal Reserve is doing. The removal of monetary accommodation is not made any easier by protectionist threats and counter threats that complicate the macroeconomic mix, roil markets and tighten financial conditions.
Today’s main event risk for the dollar, and potential market shaker will be the outcome of the Federal Reserve’s meeting, which is widely expected to conclude with monetary policy left unchanged. Although May’s FOMC meeting will not include a press conference or fresh economic projections, investors should not be quick to expect the meeting to be a “non-event.”
There were no obvious triggers behind Tuesday’s bullish reversal; although news that U.S. President Donald Trump had extended the deadline on deciding whether to impose steel and aluminum tariffs on U.S. allies, including the European Union, Mexico and Canada, helped to reduce the threat of a trade war.
While we were focused on developments on the East side of the Atlantic last week (including the ECB meeting), the market’s focus is shifting westwards this week, with the May Federal Reserve meeting set to conclude tomorrow and the always-impactful Non-Farm Payrolls report on Friday.
The U.S. dollar had massive weekly gains against all majors. The release of the gross domestic product for the first quarter of 2018 beat expectations but did little for a dollar that had rallied all week. Dovish central bank rhetoric from the European Central Bank and the Bank of Japan have increased the anticipation for the U.S. Federal Reserve’s Federal Open Market Committee on Wednesday, May 2 at 2:00 p.m. EDT.
U.S. equity markets gapped higher Sunday night with the “Mission Accomplished” rhetoric bringing a calming. The U.S.-led strikes on Syria were done in conjunction with Britain and France and while some hailed the execution as perfect, the market clearly agrees. The question that remains is whether Russia will retaliate.
Stock markets have got off to a relatively positive start on Monday, despite the United States, UK and France carrying out targeted strikes in Syria over the weekend in response to the chemical weapons attack a couple of weeks ago.
Markets haven’t been behaving well with Thursday/Friday being the latest example. I’m not even sure it was the weak jobs number which came in at 103,000 despite expectations of 182,000. Supposedly the Ides of March always augur in bad weather which leads to a "less than" haul. We’ll see soon enough in 30 days whether the weather caused an outlier.