The Fed and the ECB meetings played out precisely as we scripted yesterday: The Fed was more hawkish with 4 hikes this year now being the consensus, and the ECB softened up by pushing QE through year-end, and announcing that – as economic things currently stand -- interest rates won’t be touched until we’re well into 2019.
In essence, both central banks are appropriately playing to the evidence before them.
As for currencies, the dollar rallied yesterday right up until the President stated in an interview that they’re about to go “very strong” against China on trade. Literally upon those words the dollar sold off.
As for equities, the quarter-point rate hike seemed to have zero impact, but as soon as the more hawkish forecast came to light, stocks sold off. Although the selloff was very short lived (the tighter policy makes sense given current conditions), with the Dow and the S&P rebounding to above pre-Fed announcement levels. In virtual lockstep with the dollar, however, stocks then sold off for good (for the day) on the China trade comments.
In the premarket this morning, the dollar is rallying and the euro is tanking, right on cue per yesterday’s log entry: click to enlarge
As for stocks; they're back to trading this morning on the fundamentals: click to enlarge
If we get the same rhetoric on trade as we did yesterday, however, I expect the same negative feedback from equities, as well as the dollar…