Publication date: 5 April 2017 | Covering: March 2017
Monthly Briefing
- FRESH: Fed March 14–15 raised federal funds rate to 0.75–1.00% (22 days ago); second hike of this cycle; press conference upbeat
- Article 50 triggered March 29: UK formally notifies EU of intention to leave; two-year clock starts
- Dutch general election March 15: Wilders’ PVV second but not first; Rutte VVD wins; populist surge contained in Europe
- Republican American Health Care Act withdrawn March 24 without vote; Trump legislative agenda stalls
- US February payrolls 235,000; unemployment 4.7%; economy near full employment
- BOJ easing; Jamaica IMF programme on track; NHT J$6.5 million ceiling; rates 0, 2, 4 per cent
Second Fed Hike of the Cycle: Confidence and Gradualism
The Federal Open Market Committee raised the federal funds rate by 25 basis points to 0.75 to 1.00 per cent at its meeting on 14 to 15 March, the second rate increase of the current tightening cycle and the first to be delivered without significant controversy or market disruption. The March hike, unlike the December 2015 historic liftoff and the more cautious December 2016 move, was delivered in an environment of genuine economic confidence: the labour market was near full employment, GDP growth had been solid in the second half of 2016, consumer confidence was elevated, and financial conditions were easy. Chair Yellen’s post-meeting press conference struck an upbeat note, describing the economy as performing “wonderfully” and noting that the pace of rate increases was likely to be “gradual.” The updated Summary of Economic Projections maintained the median dot for 2017 at three rate increases, meaning two more hikes were expected after March. Markets had been pricing in this outcome for some weeks, and there was virtually no negative reaction: equities rose modestly, the dollar gained, and 10-year Treasury yields moved marginally higher. The pace of Fed normalisation remained the single most important variable for emerging market and Caribbean external financing conditions, and the March hike confirmed the gradual trajectory that policymakers had been signalling.
Article 50: Brexit Clock Starts
The formal triggering of Article 50 of the Treaty on European Union by Prime Minister Theresa May on 29 March set the two-year countdown to Britain’s departure from the European Union. The letter, delivered by UK ambassador Sir Tim Barrow to European Council President Donald Tusk in Brussels, initiated a process that will culminate in formal exit on 29 March 2019. The EU’s draft guidelines for negotiations, published by Tusk shortly after the Article 50 notification, made clear that the bloc would prioritise the three “divorce” issues — EU citizens’ rights in the UK, UK citizens’ rights in the EU, and the financial settlement owed by the UK — before agreeing to open discussions on the future UK-EU trade relationship. For Jamaica and its Caribbean neighbours, which maintain significant trade, development, and diaspora ties with the UK, the two-year negotiating process had become a source of genuine policy attention: the terms of any successor arrangements to the EU-Caribbean Partnership Agreement (CARIFORUM-EU EPA) would need to be negotiated afresh with the UK, and the timeline for those negotiations was now activated.
Dutch Election and European Political Risk
The Dutch general election of 15 March produced a result that, while not a decisive defeat for the Eurosceptic populist right, was broadly interpreted as a check on the momentum of Geert Wilders’ Party for Freedom (PVV). Prime Minister Mark Rutte’s centre-right VVD finished first with around 21 per cent of the vote, while Wilders’ PVV finished second with approximately 13 per cent. Wilders’ performance was below his pre-election poll highs, and the mainstream parties showed an ability to coalesce around a broadly pro-European outcome. The result was taken as a moderately positive signal for the subsequent French presidential election, where Marine Le Pen’s National Front represented a far more acute existential risk to the European project than the Dutch PVV did in the Dutch context. Markets welcomed the Dutch outcome, though awareness remained that France and Germany still faced elections in 2017 that would ultimately determine the trajectory of European integration.
Obamacare Repeal Fails; Legislative Agenda Stalls
The Republican-led effort to repeal and replace the Affordable Care Act suffered a significant early defeat when Speaker Paul Ryan withdrew the American Health Care Act on 24 March before it could be brought to a vote in the House of Representatives, after it became clear there were insufficient Republican votes to pass it. Conservative members objected that the bill did not go far enough in dismantling the ACA, while moderate Republicans feared the political consequences of rolling back coverage in their districts. The failure was a notable early legislative setback for the Trump administration. Markets had largely been pricing in the prospects of tax reform as the more significant economic policy event — the administration’s proposed corporate tax cuts were the primary driver of the equity rally since November 2016 — and the healthcare failure raised questions about whether the same divisions that plagued the AHCA would complicate the tax legislation process.
Jamaica Mortgage Market in March
Jamaica’s mortgage market absorbed the second Fed rate hike of the cycle with equanimity. The hike had been well-signalled and the market reaction was benign, providing no sudden upward pressure on external financing costs. The Bank of Jamaica’s monetary easing continued to create a more supportive domestic lending environment, and commercial banks were cautiously adjusting mortgage products to attract qualifying borrowers. The NHT’s J$6.5 million individual ceiling and tiered rates of 0, 2, and 4 per cent provided the primary framework for affordable home ownership, and the Trust’s loan programmes continued to see strong demand. Jamaica’s IMF Extended Fund Facility programme remained on track, providing a reassuring framework for fiscal discipline and macroeconomic stability that underpinned lender confidence in the domestic market.
Looking Ahead
The French presidential election first round on 23 April is the next major European political event, and its outcome will heavily influence eurozone risk sentiment heading into the summer. The Fed’s May 2 to 3 meeting is expected to hold, with the next likely rate increase coming in June. The formal Brexit negotiation process has now begun, and the EU’s Article 50 guidelines will shape the talks ahead. For Jamaica, the IMF programme review cycle and the new fiscal year budget process are the domestic policy focal points, while the approaching Atlantic hurricane season remains the perennial external risk for the Caribbean property and infrastructure sectors.
Mortgage & Housing Finance Disclaimer: This publication is for general information only and does not constitute mortgage, financial, legal or investment advice. Mortgage products, lending criteria, interest rates and borrowing costs vary between lenders and may change without notice. Readers should obtain independent advice from a qualified mortgage adviser, financial adviser or legal professional before making financial or property decisions.
Follow Jamaica Homes on Youtube @jamaicahomes and Instagram @jamaica_homes and on Facebook @jamaicahomesnews Send us a message or email us at onlinefeedback@jamaica-homes.com or editor@jamaica-homes.com
Visit our YouTube Community ↗