Federal Reserve holds tight to support ECB

March 21, 2016

After the fireworks of the last ECB announcement the Bank of England’s and the Federal Reserve’s announcements last week we relatively mundane, with both institutions deciding no change in interest rates was required. However, there was adjustments in the forward guidance given by Janet Yellen, the chair of the Federal Reserve, reducing the expected number of interest rate rises this year. While this announcement did not have a significant impact on its own, it is evident that the Federal Reserve is unwilling to undo the good work done by the ECB the week before. Central banks continue to be cautious of financial market reactions to changes in policy.

US Federal Reserve

The budget announced by George Osborne contained little that significantly moved equities at a market level. However, there were sector level disruptions in the beverage and oil and gas sectors. A sugar tax to be levied on drinks with high sugar content caused some companies’ share prices to fall sharply. Conversely, an effective abolition of the Petroleum Revenue Tax was a significant boost to struggling oil and gas companies operating in the North Sea. Furthermore, the chancellor pledged to reduce the headline corporation tax rate to 17% by 2020.

Since the bottom in mid-January, the oil price has risen nearly 50% to over $40/barrel. This rise has been given far less coverage that the preceding fall, however, such an increase has given significant support to equities at a time of turmoil. It remains difficult to identify the underlying reasons for oil price movements and whether they are technical or fundamental. However, from the current level there remains significant scope for movement in either direction. A fall back down to sub $30 may once again be the catalyst for a broader equity market selloff.

Index Open Close Change % Change
FTSE 100 6139 6186 47 0.77%
S&P 500 2022 2049 27 1.34%
Dax 9831 9950 119 1.21%
Cac 40 4492 4462 -30 -0.67%
Nikkei 225 16938 16724 -214 -1.26%
UK 10 Year Gilt Yield 1.554 1.439 -0.115 -7.40%

UK CPI inflation is announced today, with the weaker pound potentially beginning to stoke higher inflation.  US jobless claims announced on Thursday.

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