The Fed: Soft signals vs. hard data

The Fed: Soft signals vs. hard data

The rate hike decision at the FOMC's March meeting may be more up-for-grabs than the figures suggest; Saudi Arabia carries the weight for OPEC.


”The case for monetary policy tightening has become a lot more compelling"
William Dudley, President of the New York Federal Reserve

The Fed: Soft signals vs hard data What changed over the last week to drive the fed funds futures market to raise expectations of a March 15 rate hike from roughly even odds to nearly 90%?  First, a number of FOMC members gave speeches indicating a preference for a hike "sooner rather than later".  Second, the week's economic data, especially the forward-looking purchasing managers' indexes (PMIs), signaled solid expansion.

However, PMI figures -- largely based on surveys of purchasing managers about expectations – are considered "soft data”, not what typically drives the famously data-depended Fed Chair Janet Yellen. And hard economic data -- including the core PCE figure of 1.7% and the below-expectations GDP figure for 4Q2016 of 1.9%, -- were seen as tepid by many observers. All of which leaves odds-makers in the futures market focusing on speeches, including Yellen's March 3rd appearance in Chicago, along with other straws in the wind.

OPEC: Compliant to a fault Preliminary data for February continues to show overall compliance by the cartel to its jointly-agreed crude-oil production cap. But some are more compliant than others. and Saudi Arabia has stepped in to take up the slack , According to an estimate compiled by Bloomberg, the kingdom is more than150% compliant with its quota, while many of the rest are over-producing; a significant move,  given Saudi Arabia's budget challenges.

One self-inflicted challenge for OPEC: its years-long campaign against U.S. shale-oil producers, which failed to kill them all off. Indeed, it's only made the surviving producers stronger, driving down the price at which they can be profitable. Said Dider Casimiro, executive at Russian oil producer Rosneft, "At $55 a barrel, we see everybody happy in the U.S."

Greece: Pale rider According to news source Politico, Greece has requested an "unknown" amount of financial assistance from the World Bank. The World Bank would be joining the European Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF), the so-called Troika, in helping to resolve Greece's ongoing battle for the bailout.

Germany: Good news this time Headline consumer inflation for February came in at 2.3% year-over-year, solidly above the ECB's stated target of 2%, fueling renewed calls by German officials for an early end to the ECB's bond-buying program. But ex energy, the rise was 1.7%; for goods only, ex-energy, the figure was 1.4% -- implying that the headline figure was boosted by rising oil prices after a record-low in early 2016.

 

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