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Morning Brief 11.04.2017

11 April 2017

Federal Reserve chairwoman Janet Yellen said on Monday that the era of stimulative economy is coming to an end. In his speech in University of Michigan she said that Fed now instead of its efforts to revive the recession scarred economy; now focusing on maintaining the gains of their goals in economy of the past few years. This will change the central bank’s policy making stance; she further said that Fed officials plan to continue gradual increase the interest rate unless the economy begins to deteriorate.

That means that Fed will continue to move its benchmark rate higher gradually. In March Fed raised its interest rate only the third time since the financial crisis, to a range between 0.75% and 1%. They are expected to increase interest rate two more time this year and followed by three increases in 2018. Fed is also planning to reduce its 4.5$ trillion portfolio of cash and securities.

Jannet Yellen also said that the Fed is doing pretty well in meeting its congressional mandated goals of stable and low inflation and full strength labor market.

Yellen also said that the economy had been growing at a moderate pace. Previously in February inflation rose to 2.1% over the previous year after running below 2% Fed target for almost five years and also the unemployment rate fell to its lowest level at 4.5% in March.

Yellen in his talk also suggested that Fed preferred to hold the inflation goal at 2% largely because that is the level that consumer and market expect.

A trade group survey showed that U.K retail sales declined first time since August 2016, boosted the sign that consumers are constraining their spending despite of increase in inflation and modest wage growth. According to British Retail consortium, total sales fell 0.2% in the five weeks between February 26 and April 11, 2017. Like-for-like sales also sharply fell around 1%.

Pound’s sharp decrease since the Brexit vote in June 2016 is also fueling increase in prices, after a long period of low inflation. As wage growth scuffle with the pace of inflation, this reached its three year high in February; British consumer may constraint their spending which is the key engine growth for the UK economy.

Official U.K data showed that retail sales rebounded in February; breaking three month streak of decline, but the trend remained weak, which suggest the sector was unlikely to contribute to economic growth in the first quarter. Official retail sales data is expected to announce later this month.

According to a private sector index by ANZ, Australian consumer confidence reversed the prior week’s declined and bounced around 3.3% last week. Spending growth is likely to remain coerced low wage – consistent with the recent softness in retail sales.

Australian dollar regained its ground and clawed its way back above 0.75$, which reflect that it could be possible that some foreign buying fueled the recent gains in Australian stocks. It is possible that the Australian dollar is expected to bounce a little to test the resolve of the bear.