The Fed looks set to commence reducing its balance sheet later this year or in early 2018, reported ANZ in its research note. The Fed to phase out its reinvestments because ceasing immediately would provide too abrupt a change to financial conditions given the large amount of securities maturing in 2018 and 2019. A gradual approach to reducing the balance sheet should allow the Fed to continue ongoing normalisation of the fed funds rate.

A run down in the balance sheet tightens financial conditions slightly differently compared with an increase in short-term rates. The former is likely to have more of a negative impact on domestic demand.

Opinion polls continue to indicate a comfortable victory for Emmanuelle Macron in the second round of the French presidential election on 7 May. The ANZ GLI remained elevated again in March near a six-year high, suggesting global momentum remains firm in early 2017.

Weakness in US household spending is pointing to a soft outcome for Q1 GDP. There doesn’t seem to be anything concerning as a subdued Q1 has been a pattern in recent years.  

The summit between US President Trump and China’s President Xi was regarded as cordial, with no formal communications released after the meeting. Meanwhile in the background, US trade officials are looking at means for reducing imbalances with those countries the US has a large trade deficit with.