Gold has dipped in the Thursday session. In North American trade, XAU/USD is down 0.40%, with spot gold trading at $1254.00 per ounce. On the release front, unemployment claims dipped to 237 thousand, marking a 3-week low. The Empire State Manufacturing Index rebounded with a strong gain of 19.8, crushing the estimate of 5.2 points. The Philly Fed Manufacturing Index dropped sharply to 27.6, but still beat the estimate of 25.5 points.
The markets had priced in a rate hike at almost 100%, and the Federal Reserve did not disappoint. After weeks of broad hints that a rate hike was coming, the Federal Reserve made a move at the June meeting, marking its second rate hike in 2017. The Fed increased rates by 25 basis points, to a target range of 1.00 percent to 1.25 percent. Fed policymakers sounded upbeat in the rate statement, which that was more hawkish than expected. The statement portrayed an optimistic picture, noting that the economy was growing and the labor market remained strong. Concerns over low inflation were brushed aside, as the statement noted that although inflation remains below the Fed’s target of 2.0%, it expected that target to be reached in the “medium term”. The Fed projected one more rate hike in 2017, and analysts were quick to circle December meeting as the most likely date. However, the markets don’t appear to share the Fed’s optimism as far as another rate hike this year. The odds for a September increase are at 18%, compared to 23% a week ago, according to the CME Group. As for a December increase, the odds stand at just 38%.
Although the rate hike was practically a non-event, the Fed still managed to surprise the markets. Earlier in the year, the Fed mentioned its goal of reducing its $4.2 billion balance sheet (comprised of Treasury bonds and mortgage-backed securities). Fed Chair Janet Yellen revisited this issue at her follow-up press conference on Wednesday. Yellen was short on specifics, saying that the goal was to begin the normalization “relatively soon”. The Fed balance sheet ballooned after the financial crisis in 2008, as the Fed implemented a massive quantitative easing program as part of its accommodative monetary policy, together with interest rates of zero. The gradual reduction in the purchase of these assets is significant for the markets, as signifies a vote of confidence in the strength of the US economy.
Thursday, June 15
· 8:30 US Unemployment Claims. Estimate 241K. Actual 237K
· 8:30 US Empire State Manufacturing Index. Estimate 5.2. Actual 19.8
· 8:30 US Import Prices. Estimate +0.1%. Actual -0.3%
· 8:30 US Philly Fed Manufacturing Index. Estimate 25.5. Actual 27.6
· 9:15 US Capacity Utilization Rate. Estimate 76.8%. Actual 76.6%
· 9:15 US Industrial Production. Estimate 0.2%. Actual 0.0%
· 10:00 US NAHB Market Index. Estimate 70. Actual 67
· 10:30 US Natural Gas Storage. Estimate 88B. Actual 78B
· 16:00 US TIC Long-Term Purchases. Estimate 37.3B
Friday, June 16
· 8:30 US Building Permits. Estimate 1.25M
· 8:30 US Housing Starts
· 10:00 US Preliminary UoM Consumer Sentiment. Estimate 97.2
*All release times are EDT
*Key events are in bold