Relief of looser US monetary policy cannot mask risks

Significance

Following the meal, the Fed said Powell did not discuss monetary policy "except to stress that the path of policy will depend entirely on incoming economic information and what that means for the outlook". The futures market now sees a 75% chance that the interest rate will be unchanged in twelve months’ time, a substantial shift from late last year when at least two rate hikes were widely predicted for 2019. This shift is helping US equities to regain momentum.

Impacts

• The flatter dollar this year is helping net inflows to emerging market bond and equity funds build momentum after large outflows in 2018.
• Further oil price upside may be limited; Venezuela’s small share of global output means sanctions will not greatly alter market dynamics.
• Mario Draghi’s ECB presidency ends in October; policy could be disrupted if European elections in May delay the succession process.
• US economic momentum is firmer than in the euro-area or Japan but less monetary policy divergence between them may help the euro and yen.