The actions of the US administration

The actions of the US administration

The actions of the US administration

The first month of spring was full of important events. The main topic during this period was uncertainty about the next steps of the new US administration. In addition, investors continued to monitor the monetary policy of world Central Banks. In addition, the focus remained on the political situation in France, where the first round of presidential elections will soon take place, and in the UK, which has already started the official Brexit process. Investors also closely watched the dynamics of the oil and gold markets.

The result of March was a widespread weakening of the us dollar, correction of US stock markets, a slight decline in the value of gold, as well as a large-scale drop in oil prices.

At the beginning of the month, investors ' attention was drawn to the statements of US President Donald trump. In his first speech to Congress, trump touched on a wide range of issues, including migration policy and the construction of a wall on the border with Mexico. The President said that the US will continue to support NATO. Trump also said that he intends to reduce corporate income tax and reduce taxes for the middle class. Overall, trump's speech somewhat disappointed investors, as it did not contain details of the tax reform plan. However, the negative market was quickly offset by increased expectations about the tightening of the fed's monetary policy on the background of the publication of positive data on the US and statements by fed officials. New York fed President Dudley noted the growing arguments in favor of raising rates in March due to strong us economic data, and San Francisco fed President Williams said that the issue of raising interest rates deserves serious consideration. Fed spokeswoman Brainard also said that given the ongoing progress in the us economy, it would probably be appropriate to continue gradually raising interest rates. Meanwhile, fed spokesman Powell said he believes a March rate hike is appropriate. After such statements, the market's focus shifted to the speech of fed chief Yellen, which left little doubt that the Central Bank will raise rates in March. Yellen noted that raising rates in March would be appropriate, and the fed's monetary policy this year is likely to tighten faster than expected. It also signaled that this will not be the last increase in the cost of borrowing this year. Data on the US labor market gave additional confidence to investors that the fed will raise interest rates in March. The labor Department reported that the number of jobs in the non-agricultural sector increased by 235,000 in February. Analysts had expected an increase of 190,000. Over the past three months, employment growth has averaged 209,000. The unemployment rate fell by 0.1% to 4.7%, which coincided with forecasts. At the same time, the average hourly wage increased by 0.2% in February, which was lower than expected (+0.3%).

All these events led to the fact that before the announcement of the results of the March meeting, the probability of a fed rate hike was 90.8% against 35.4% at the beginning of the month. As a result, the fed decided to raise the rate to 0.75-1% from 0.5-0.75%. However, the fed left unchanged its early forecast of three rate hikes this year. This decision disappointed some investors, who were waiting for hints about the possibility of a fourth rate hike in 2017. Most FOMC members said they expect two more rate hikes in 2017, to an average of 1.375%. According to average forecasts, by the end of 2018, the rate will be in the range of 2.0%-2.25%. As for 2019, expectations have increased slightly, and now forecasts indicate that the rate will be 3% by the end of 2019. Meanwhile, fed chief Yellen said that the fed's management raised the rate on the background of continued growth in the economy. She added that the meeting hardly discussed the measures in tax and budget policy promised by trump. This, in particular, led to the fact that the Central Bank's economic forecasts almost did not change.

After the fed meeting, the market's focus returned to the US administration. Investors began to doubt more and more that Trump will be able to quickly and fully agree on all the promised reforms in Congress. Meanwhile, the pessimism of market participants was reinforced by the news that the house of representatives of the US Congress at the last moment withdrew the health care reform bill proposed by trump. The bill was withdrawn after it became known that it would not get the required minimum of votes. Republicans have been trying to pass this reform for seven years, and its withdrawal will greatly shake the position of the American President and jeopardize his authority. However, Donald trump promised that he would propose an even better law, and at the same time stressed that tax reform is now next.

Returning to the meetings of the world's Central banks, in March, meetings were also held Bank of Canada, RBA, ECB, Bank of England, SNB, BOJ and RBNZ. However, the most significant were the results of the ECB and Bank of England meetings. Recall that the ECB decided to leave interest rates at record low levels, despite the fact that inflation in the Euro zone for the first time in four years exceeded the target level. The refinancing rate remained at 0.0%, while the Deposit rate was kept at -0.40%. The ECB said that it expects rates to remain at current or lower levels for a long period, that is, much longer than the end of the quantitative easing program. Meanwhile, ECB chief Draghi said that further stimulus measures supporting the economy and increasing inflation have become less likely. He added that the recovery of the Euro zone economy is accelerating, but also stressed that there are few signs of increasing inflationary pressure.

As for the Bank of England, the results of its meeting somewhat surprised analysts. The Central Bank left the key interest rate at 0.25%, but signaled the possibility of an early increase. At the same time, one of the managers voted for an increase in the cost of lending, while all the others noted that they may soon support such a decision. The Bank of England explained that it did not change rates due to uncertainty around the country's prospects ahead of negotiations on leaving the European Union. If we talk about the dynamics of the pound, the current month the GBP/USD pair ends with a slight increase, about 0.8%.

 

An important topic in March was also the continuing political uncertainty in Europe related to the upcoming presidential elections in France. Recall that the Chairman of the" National front " marine Le Pen has repeatedly stated that she will seek France's exit from the EU and the abolition of the Euro if she wins the election. However, the results of the first presidential debate in France have reduced concerns about Le Pen's promises. Only 5 of the most popular candidates out of 11 who are taking part in the election race took part in the discussion. According to a poll conducted by Elabe after the debate, Emmanuel macron, the leader of the Forward party, was the most convincing. It was supported by 29% of respondents. He was significantly ahead of other participants, including marine Le Pen, who was supported by 19% of respondents. Before the 1st round of the election, which is scheduled for April 23, there will be two more series of debates, where all 11 candidates will be given the floor. In General, the debate calmed the markets, and slightly supported the Euro - since the beginning of March, the EUR/USD pair has grown by 1%.


As for the situation on the commodity market, gold fell by about 0.7% in March after a 3.64% price increase was recorded in February. It should be emphasized that in the first half of the month, gold prices fell by almost $50, reaching the lowest since January 31, the reason for which was the strengthening of the dollar and expectations of a more aggressive tightening of the fed's monetary policy this year. However, after the fed confirmed its forecast for only two rate hikes in 2017, gold prices began to actively increase, which was also supported by the General weakening of the us currency. As a result, gold recovered almost all the positions lost in the first half of March.


If we talk about the oil market, since the beginning of March, the price of WTI crude oil has fallen by almost 7%, while the price of Brent crude oil has fallen by about 4.6%. The decline in prices was due to an increase in production volumes and an increase in oil reserves in the United States, which in turn offset the efforts of OPEC members aimed at reducing the global oil glut. According to the us Department of energy, us oil production has increased by about 5% since the beginning of December. Meanwhile, the latest report from Baker Hughes showed that the number of active oil rigs in the US rose to 652 units, reaching the highest since mid-September 2015. As for oil reserves in the United States, they are now near a record high. The current situation indicates that the OPEC agreement to limit production has not yet had the desired effect on reducing the global oversupply. Traders note that OPEC needs to extend the agreement or increase production cuts to prevent the risks of further price declines. Meanwhile, over the weekend, the Ministerial Committee for monitoring the implementation of the agreement on reducing oil production by OPEC and non-OPEC countries proposed to extend the agreement for six months, but said that in April it expects recommendations from the OPEC Secretariat on this issue.

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