Greetings, 

We begin with the United States where, as expected, the Federal Reserve has left rates unchanged. The divided FOMC, however, hinted that a rate hike is coming soon.

Source: FRB

The futures-implied probability of a rate hike by year-end is now above 60%.

Source: CME

One of the key results from the FOMC meeting - something that the media doesn't seem to cover much - is another downgrade by the Fed of the US long-term growth. The central bank now believes (on average) that the United States economy won't grow faster than 2% in years to come. The FOMC has been steadily downgrading its expectation for long-term growth over the past five years - from 2.65% to 1.85%. 

As a result of the above, in just over a year, the Fed has downgraded the US long-run fed funds rate from 3.8% to 2.9%.

The FOMC has also been consistently downgrading the fed funds rate projections for the next couple of years.

Source: Bloomberg

In other US developments, markets remain convinced that inflation will stay benign in years to come.

Source: Macquarie, @joshdigga

According to the Mortgage Bankers Association, growth in US mortgage activity for home purchases, while still positive, has been declining.

Now let's turn to the funding markets, where US dollar LIBOR continues to grind higher.

Source: St. Louis Fed

At the same time, OIS rates have declined in response to the Fed's inaction, pushing the LIBOR-OIS spread to multi-year highs.

Source: Bloomberg

The uptake of the Fed's RRP program has been steadily rising as we approach the end of the quarter. Some expect the usage to spike on the last day of the month by more than it has in previous quarter-ends.

Next, let's go to Japan where the BoJ has shifted to a more flexible quantitative easing regime that would allow it to target specific portions of the yield curve rather than the blunt instrument of purely buying securities. The central bank also committed to allow inflation to rise above the 2% target. Here is a nice summary from Goldman.

Source: Goldman Sachs

The BoJ is not happy with the results of the negative rate policy which ended up tightening financial conditions.

Source: Goldman Sachs, @joshdigga​

Instead, the central bank can now target the shape of the curve, keeping it sufficiently steep to help the banking sector (which came under pressure from negative rates). Japanese bank shares rallied sharply in response.

As discussed yesterday, the dollar initially rose (yen fell) on the BoJ announcement. However, that trend later reversed. The Fed's inaction that helped the yen strengthen further is not what the BoJ had been hoping for. 

The yen strengthened sharply against the euro as well, which is likely to hurt Japan's exporters as well as cap any gains in inflation.

1. Turning to Europe, Norway's unemployment rate unexpectedly hit 5%. While this would be considered a great success for many nations in Europe, Norway saw its unemployment rate double since 2008 (when oil prices peaked).

2. The Swiss National Bank's balance sheet continues to expand, pushing the monetary base to record levels. The central bank's holding of foreign currency, which is mostly euros, is now larger than Switzerland's annual GDP. 

3. Portugal's bonds are under pressure again.

1. In emerging markets, debt fund flows seem to have stabilized.

In fact, EM debt funds rallied sharply after the Fed's decision to hold rates unchanged. The chart below compares the largest US HY fund with the largest public EM debt fund over the past week.

Source: YCharts.com

2. Related to the above, Argentina's dollar bonds rallied sharply, with the yield approaching recent lows.

3. EM equities had a spectacular day.

Source: YCharts.com

4. Even the Ukrainian stock market is showing signs of life.

5. EM currencies rallied across the board on the Fed's announcement.

6. The biggest winner was the South African rand.

1. We now turn to commodities, where gold rallied in response to the FOMC decision.

2. Lead resumed its climb.

3. Coffee is having an amazing few weeks on tighter export markets.

4. The UK natural gas jumped 3% due to some unplanned outages. This spike is likely to be temporary as LNG feeds ramp up.

Now let's look at some fund flow data from our friends at Credit Suisse.

1. The so-called "strategic beta" funds saw outflows for the first time in over a year.

Source: Credit Suisse, @joshdigga

2. Yield-oriented funds continue to enjoy inflows.

Source: Credit Suisse, @joshdigga

Source: Credit Suisse, @joshdigga​

3. Japan-focused equity fund outflows continue.

Source: Credit Suisse, @joshdigga​

4. US equity fund outflows have been severe. The second chart below shows flows for large-, mid-, and small-cap funds. 

Source: Credit Suisse, @joshdigga

Source: Credit Suisse, @joshdigga​  

1. In global developments, yields on average are still below the pre-Brexit levels.

Source: Macquarie, @joshdigga

2. Global steel consumption has turned positive (year-over-year).

Source: Macquarie, @joshdigga  

Finally, it seems that the 2008 federal government's bailout of Freddie and Fannie is rearing its head again. Could this development impact the mortgage market? 

Source: Miami Herald, h/t @MattGarrett3; Read full article here  

1. Turning to Food for Thought, apparently, 69% of Americans have less than $1,000 in savings.

Source: ‏@joshdigga

Source: ‏@joshdigga, Further Reading

2. Presidential approval vs. satisfaction with the state of the nation.

Source: @FactTank, @Tmp_Research; Read full article here

3. Chicago's homicides on the rise. 

Source: @PostGraphics, @Tmp_Research; Read full article here

4. The gap between married and single Americans.

Source: @paul1kirby, @uscensusbureau

5. US state governments' revenue sources by region.

Source: @uscensusbureau