Summary:

• Federal Reserve leaves rates unchanged as expected adding a subtle change to the statement
• US dollar is broadly unmoved after the decision, Wall Street makes a quick move up and down
• Australian dollar lower in early trading on disappointing housing and PMI readings

In line with market anticipations the Federal Reserve left all rates at the same levels making some subtle changes to the statement. Major attention was paid to an additional word ’further’ which the FED inserted saying that the economy is going to warrant further gradual increases in rates. Moreover, the communique dropped a line that inflation will remain below 2% in the near term and acknowledged that market-based measures of inflation compensation have increased in recent month but they still remain quite low. Finally, it repeated that near-term risks remain roughly balanced (notice that prior to the release there were expectations that a word ’roughly’ could have been removed). In a nutshell, the statement could be viewed as slightly more hawkish compared to the prior one and it pushed rate hike expectations subtly higher (market participants are basically certain the FED will hike rates in March) but it did help neither the US dollar or Wall Street.

Wall Street made a quick decline following the FED decision yesterday but it briefly rebounded. Source: xStation5

At the time when the FED statement was released the US equity markets slumped to some extent, however, they were able to recoup those losses before the final bell. One of the most interesting events yesterday evening were Facebook earnings which more or less beat forecasts. EPS in Q4 was $2.21 while just $1.95 had been expected, revenue was $12.97 billion against the consensus $12.55 billion. Apart from it, monthly active users unchanged and stayed at 2.13 billion while daily active users fell short of the consensus (1.41 billion) printing 1.4 billion. Ultimately, the stock gained but at first it tumbled after the company said it had made changes including a crackdown on viral videos, that reduced the amount of time users spent on its social network by 50 million hours a day in the quarter (5%). Recovery came as executives said that ad prices increased balancing out audience declines. Technically, the SP500 (US500 on xStation5) seems to be at a decent place to consider a long as the price successfully tested a support in form of an upper limit of a broken channel.

The Australian dollar appears to be doomed to failure in the short-term given a technical view. Bears might take a stab at nearing 0.7880 and subsequent supports thereafter. Source: xStation5

Looking beyond the FED meeting one needs to underline underperformance of the Australian dollar which is a by-product of disappointing housing and PMI readings. First of all, building permits plunged 20% mom in December while a 7.6% mom drop had been anticipated. When we have a look at a yoy basis it looks even worse as we got a 5.5% decline against the consensus at +11.5%. On top of that, Markit PMI for January showed 55.4 making a drop from 57.1 seen in the previous month (AIG PMI improved from 56.2 to 58.7 at the same time but more emphasis is put on the Markit gauge). Finally, let’s add that Chinese Caixin/Markit manufacturing PMI for January stayed at 51.5.