Unfazed by Fed liftoff

December 17, 2015

US interest rate liftoff, so far at least, has been the sort of damp squib markets-wise that the Fed had been praying for after trailing the move for more than a year. Volatility surrounding last night’s announcement has been modest, most stock markets on Wall St and around the world are 1-2 pct firmer, the US yield curve has flattened with 2-year rates nudging just above 1.00 pct while 10-year yields actually fell back a bit. And as doveish as the message on “gradual” rate rises from here was, the Fed’s own assumptions on where rates go over the next year (from between 0.25-0.50 today to 1.25-1.50 in a year’s time) is still almost twice what the market’s is pricing over that horizon.

Migration and Britain’s membership of the EU will dominate talks among European leaders starting in Brussels today. A morning meeting with Turkey will explore ways of admitting Syrian refugees with bona fide grounds to seek asylum directly into Europe, while the full summit will look at a European Commission plan to boost frontier defence with a European Border and Coast Guard. With Greece and Italy struggling to control their own borders, the idea is to be able to deploy EU border forces without the consent of the member state concerned — a controversial incursion into national sovereignty that some consider a step too far.

Germany’s Angela Merkel may have promised to be “extremely helpful” to British premier David Cameron in his quest for EU reform, but it is still not clear how he will dig himself out of the hole he has put himself in with an unworkable demand to make EU migrants to Britain wait four years before claiming in-work benefits. British officials insist they remain open to other suggestions but what with the migration crisis, the Syrian conflict, fraught relations with Russia and other pressing concerns, there hasn’t exactly been a rush of new ideas. EU Council President Donald Tusk insists there should be no taboos in the talks over dinner.

Russia’s Vladimir Putin gives his annual news conference starting at 0900 GMT, and is likely to last for several hours. Amid the usual mix of wise-cracks and sneers at critics, expect comments on Syria, relations with Turkey, oil prices and possibly the Fed’s decision to raise interest rates.

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