How Windy Is It . . . ? Monday, 22nd February 2016 – No.167
How windy was it last week?
It was blustery! A lot of hot air prevailed last week mainly in the realm of politics.
So, we have one hundred and twenty two days to endure the playground politics of debate around membership of the European Union. David Cameron has announced that the date of the EU referendum will be Thursday, 23rd June and already the front pages of the majority of the papers are proliferated with confusing and contradicting articles. Should we stay? Should we go? According to the Financial Times this morning, about half of the FTSE 100 company bosses will be signing a letter backing David Cameron in his fight to keep the UK in the EU. So does that mean about half want to leave?
The argument is never black or white, but nuanced blends of grey. Over the next four months we will be giving you the facts around an extremely important decision. In the meantime expect more windy days of hot air.
The squalls continued to be politically led in the US, as Donald Trump continues to confound critics and gain in the opinion polls. Will Mr Trump become the Republicans presidential candidate? It seems we are set for a season of uncertainty.
Which bring us nicely to the Federal Reserve. Last week the Federal Open Market Committee (FOMC) published its minutes from January and the one thing that stood out was the emphasis on the prevailing uncertainty and the difficultly that brings for decision making and the outlook.
The table below charts the mention of “uncertain” in the FOMC minutes over the past five years. As you can see, the twenty four occurrences mark the largest tally in recent history, by some margin.
Source: Federal Reserve Board, Gluskin Sheff
The lack of clarity does give cause for a pause. However, it does not mean a change in policy stance from the Federal Reserve.
The base case is still a higher Fed funds rate given the outlook for strong labour market and expectations over inflation. However, there may be a prolonged pause before the next rate hike.
What does this week have in store for us? The affect of last week’s warning from the OECD (Organisation for Economic Co-operation and Development) that global growth forecasts have practically “flatlined” means there will be additional scrutiny for any further signs of weakness in new data releases. This will include manufacturing data from both France and Germany, as well as their inflation figures. We expect a mixed reception from the markets.