Well damned if this wasn’t a good news type of day.
We’d wager the only people unhappy with how Wednesday turned out are Treasury shorts (and there are a lot of them) who got burned badly by a Fed that managed to sprinkle just enough dovish pixie dust into today’s hike to send yields plunging. Oh, and bank stocks were understandably unhappy…
“Treasuries surged after the Fed raised rates as expected and maintained forecasts for additional increases for the next two years, dashing expectations it might signal a quicker pace of hikes,” Bloomberg wrote on Wednesday afternoon, adding that “traders who were speculating on a more hawkish slant from the Fed were left disappointed that the central bank didn’t signal it was shifting to a more aggressive tightening path.” The dollar fell against all of its major peers.
“This is broadly negative for the U.S. dollar,” Mark McCormick, North American head of foreign-exchange strategy at Toronto-Dominion Bank in Toronto, said. “The market was looking for a definite shift in the dots and more clear signals toward a more restrictive stance over the next few years.”
As for risk: it was off to the races…
Everything that fell last week amid the deflationary plunge in crude rallied, with the slumping USD underpinning commodities.
And as if we hadn’t gotten enough good news for one day, this hit the wires one minute (literally) after the close:
- DUTCH LIBERALS BEAT WILDERS’S FREEDOM PARTY: ELECTION EXIT POLL
Here’s the breakdown:
Prime Minister Mark Rutte’s Liberal Party took 31 seats in elections on Monday, according to an exit poll by Ipsos published as voting booths closed.
- VVD (Liberal Party, Prime Minister Mark Rutte) receives 31 seats
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- Compares with 41 seats in 2012 elections
- PvdA (Labor Party, Lodewijk Asscher) recieves 9 seats
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- Labor took 38 seats in 2012 elections
- Party is current government partner with Liberal Party
- PVV (Freedom Party, Geert Wilders) receives 19 seats
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- Compares with 15 seats in 2012 elections
- SP (Socialist Party, Emile Roemer) recieves 14 seats
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- Compares with 15 seats in 2012 elections
- CDA (Christian Democrats, Sybrand Buma) recieves 19 seats
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- Compares with 13 seats in 2012 elections
- D66 (Democrats 66, Alexander Pechtold) recieves 19 seats
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- Compares with 12 seats in 2012 elections
- CU (Christian Union, Gert-Jan Segers) recieves 6 seats
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- Compares with 5 seats in 2012 elections
- GL (Green Party, Jesse Klaver) recieves 16 seats
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- Compares with 4 seats in 2012 elections
- SGP (Reformed Party, Kees van der Staaij) recieves 3 seats
- PvdD (Party for the Animals, Marianne Thieme) recieves 5 seats
- 50+ (50 Plus Party, Henk Krol) recieves 4 seats
- Denk recieves 3 seats
- Forum for Democracy gets 2 seats
Can you guess what that meant for EURUSD? That’s right, (another) leg up:
Needless to say, that’s a sigh of relief for markets. As a reminder, that could have gone horribly wrong. Had the Fed come across as too aggressive and had Geert Wilders simultaneously put up a better-than-expected showing in the Netherlands, we could have seen a bloodbath in the single currency.
“The Freedom Party’s tally as seen by the Dutch exit poll is on the low side and this will be seen as reducing the risk premium attached to the risk of France leaving the euro zone,” Deutsche Bank wrote.
Ultimately, you’re reminded that the Fed did actually hike. And that’s the first sign that the global monetary policy regime that’s looked like this…
… since the crisis, is about to change.
At the end of the day, we think the journalistic “queen of credit” may have put it best:
Remember when rate rises were bad?
— Tracy Alloway (@tracyalloway) March 7, 2017
