NEXT PUBBLICATION: 20.04.2018

The new governor of the American central bank Powell announced yesterday the first monetary tightening of the year by the Fed from 1.50% to 1.75%, this increase was widely expected by the market.

The economic projections, however, presented yesterday say that for the moment the FOMC has not yet arrived to change the lineup announced previously.

For the current year there should still be two more hikes after the one decided yesterday. But the level considered “normal” has been raised to 3%, which will be gradually phased, this level should be achieved by the end of next year. Therefore, during 2019, another 3 hikes should be announced, one more than previously assumed. Here we see a hint of greater severity than what we have seen during the recent past.

In fact, the Yellen management had stopped to hypothesize a normality around 2.75% to be achieved at the end of 2019 and then this should have remained the official rate, in the absence of accelerating inflation. Yesterday, in addition to providing a slightly higher norm, it was also assumed to exceed it in 2020, coming to estimate a rate of 3.25%, which would bring the intonation of more hawkish monetary policy.

The probable announcement of customs tax by Trump (it is assumed that the total amount of cross border tax for China alone will be USD 50 billion), the aforementioned tightening of US rates, the continued increase in the American deficit criticized by most Foreign creditors and last but not least the Facebook scandal have changed the mood of the investors who have started to sell risky underlying in a fairly aggressive manner.

We believe that for the time being volatility will remain very present in the financial markets, in particular those on stock exchanges, we recommend for the moment great caution and take advantage of market corrections to set up strategies to hedge or lighten existing positions.In the medium term, however, we believe that the market can recover and record positive growth as economic fundamentals and expected corporate results are still expected to be positive but only in the absence of a worsening of a trade war.

From the currency point of view, we believe the USD is close to its lows, particularly against the EUR and CHF. We believe that the greenback can start to recover but only during the second part of the year.