The FOMC meeting was a bit of a mark-to-reality exercise for markets, after perhaps getting a little ahead of itself. This applies both to the intra-day moves and the direction over recent weeks. Earlier in the day, yields had risen, the USD was up and equities were wavering. Post Fed: US equities are up a fraction, yields are lower, the USD is lower and GBP is the outperformer.

Indeed, the changes in the FOMC statement were relatively limited, reflecting the reality that the US economy has improved since the weather related slowdown in the first quarter. But that recovery is moderate and there is still work to be done, particularly on incomes and inflation.

This event is now a multi-faceted one, with forecasts, dot points and speeches. That means there tends to be something for everyone, no matter your point of view. Thus, it tends to come down to the dot points, which attempt to show where the FOMC members believe the Fed Funds rate will be at the end of each of the next three years. These had to reflect the reality, that given the Fed had not yet started to raise rates, that their prior distribution of ‘dots,’ where some were at 1% for 2015, is extremely unlikely (similarly for the highs of 2016 and ’17). So, while the median forecast for 2015 was unchanged at 0.625%, the distribution was lower and more members seeing only one, or no, hikes this year, not two.

It is this fact that is behind the dovish tone to the market’s response to the FOMC meeting. Two hikes are still possible this year, but as we probably already knew, it is not exactly a given. It appears, that with yields rising in the US, and the curve having steepened, that the market was perhaps a little ahead of itself, the data and now clearly, the Fed. As NAB’s interest rate strategist, Skye Masters, notes, this likely keeps US 10yr yields around 2.5% for now. That, in turn, still supports the USD, but potentially limits its upside (in the absence of an extreme market risk event, aka Greek default).

In the rest of the release, the median dot points for 2016 and 2017 were lowered, as the highs were looking pretty unlikely. The economic forecasts for 2015 were lowered, as expected but fractionally higher in the out years.

There were other events yesterday; in the UK BoE minutes showed two members ‘finely balanced’ for the decision to raise interest rates, while the unemployment rate remained steady and earnings were above expectations. That allowed GBP to outperform. The ongoing Greek grumbling continues.

The AUD underperformed yesterday, and while it is flat now, that belies the large moves in the last 24hours. There was no local data, but the fall in iron ore prices was possibly weighing.

Coming Up

It is quiet in Australia today, as we take in the events of overnight and prepare for more news from Greece. In NZ, the Q1 GDP release could cause some movement if it differs much from the 0.6%qoq consensus.

There are a number of things released, but predominantly, markets will be monitoring the newsflow from the EuroGroup Finance minister’s meeting. The ongoing discussions about Greece between those who want a compromise and those who want Greece to meet the proposals already tabled will generate more than enough headlines; let alone the commentary from Greece’s officials themselves. As we head closer to the deadline, (and the deadline may not even be the deadline), the higher is the risk of a less orderly resolution. For those who believe that the loss of Greece from the EUR doesn’t matter- note the Bundebank’s Weidman highlights that there does remain contagion risks, even Yellen pointed to this as a market risk.

Elsewhere, the UK reports its retail sales, which should retrace April’s bounce. GBP has been outperforming of late, so the risks lie in a bigger than expected decline.

In the US, we are now back to watching the data: the CPI and Philly Fed releases are both expected to rise.

Overnight

On global stock markets, the S&P 500 was +0.20%. Bond markets saw US 10-years +0.72bp to 2.32%. On commodity markets, Brent crude oil +0.11% to $63.77, gold+0.4% to $1,186, iron ore -2.2% to $61.51. AUD is at 0.775 and the range was 0.7646 to 0.777. (For more market prices, please see p.2 of the pdf).

• BoE minutes: two members are close to hiking
• UK wages 2.7%yA, 2.1E, 2.3P rev higher.

For full analysis, download report:

• Markets Today: 18 June 2015 (PDF, 416KB)

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