Rising Rates, Falling Energy Prices, Who Wins?
The Federal Reserve raised interest
rates by a 1/4% to 3.5%, as expected. It was the 10th straight time
the Fed raised the target rate. The accompanying statement said “…the
upside and downside risks to the attainment of both sustainable growth and price
stability should be kept roughly equal. With underlying inflation expected to be
contained, the Committee believes that policy accommodation can be removed at a
pace that is likely to be measured.“
Click here for the statement in full.
US treasuries rallied after the announcement. The US 10yr T-Note +0.21%,
5yr T-Note +0.15% and 2yr T-note +0.05% all closed higher. Stock
index futures all hit their intraday highs shortly after the announcement.
The US dollar declined vs. the Euro and Yen as the market had
already priced in today’s action. Both stronger growth and the yield
differential are helping to boost the US dollar which has been rallying for most
of 2005. The European Central Bank’s overnight rate is currently 2%, unchanged
since 2003 and the Bank of Japan has kept rates near 0% since 2001. The yield on
the US 10yr T-Note is now more than 1 percentage point higher than the yield on
the German 10yr Bund (the European benchmark).
The whole energy complex closed lower today. Crude
Oil -1.36% hit a new intraday high early in the session before reversing.
Harbor Unleaded -1.78% was the biggest decliner, while Natural
Gas -0.40% continued to exhibit good relative strength.
Most of the grains closed negative, led lower by Soybeans
-2.68%. Soybean Oil -2.49% and Corn -1.27% were both
highlighted in the
TradingMarkets.com Implosion 5 List last night.
Copper -2.37% was the only notable mover in the metals.
Sugar -1.78% and Cocoa -2.18% both declined but Frozen Orange
Juice -6..05% was the biggest percentage mover.
Economic News
Store Sales: W/W Change – Actual -0.8%
Non-farm Productivity: Q/Q Change – Actual 2.2% Consensus 2.0%
Unit Labor Costs: Q/Q Change – Actual 1.3% Consensus 2.7%
Whole Sale Trade, Inventories: M/M Change – Actual 0.7%
FOMC Meeting Announcement
Federal Funds Rate, Target Level: Actual 3.5%% Consensus 3.5%
Ashton Dorkins