So, the theory that the last Fed speaker before the pre-FOMC purdah sets in was to lay the groundwork for a September hike was largely blown to pieces last night as Brainard stuck to her dovish leanings in her speech. She made the point that there is no rush and that the damage from moving too soon outweighs the risks of waiting too long. The market now puts the chances of a hike nearer 20%, compared to the 30% prevailing for most of last week. That said, there has clearly been a dis-connect between market thinking and what the Fed has been saying in recent weeks, so whilst on paper the risks may be low, in practise the market will be right in remaining nervous ahead of the 21st September meeting.
The dollar was naturally weaker in the wake of her speech, but the losses have largely been reversed to leave it little changed overnight. Equities were also able to make headwinds after Friday’s losses, but the opening gap lower of Friday remains to be filled on the S&P. We’ve seen some mildly positive starts on European bourses this morning on the back of the late US gains, whilst commodities have also stabilised. For now, the fear of the Fed appears to have receded at that at least should ensure we have a calmer week. Today, we see inflation data in the UK, which comes ahead of the BoE meeting Thursday this week. At this point in time, there is minimal risk of a further policy change, but given that there were indications last month of the risk of further easing later this year, markets will be sensitive to any indications that this view has receded at all.