Publication date: 5 May 2015 | Covering: April 2015
Monthly Briefing
- No April FOMC meeting; March statement removed “patient”; June and September both live for first hike
- Iran nuclear framework agreed Lausanne April 2; sanctions relief contingent on final deal by June 30
- Yemen: Saudi-led coalition airstrikes began March 26; Houthi advance; oil supply risk premium elevated
- Strong USD continues headwind for US multinationals; Q1 earnings season mixed; dollar index near 12-year highs
- Greece Syriza government negotiations with institutions continue; capital flight from Greek banks accelerates
- Jamaica IMF EFF on track; BOJ easing; NHT J$6.5 million ceiling; rates 0, 2, 4 per cent
Fed Removes ‘Patient’; June and September Both Live
There was no Federal Open Market Committee meeting in April, leaving investors to digest the March 17 to 18 decision and statement in which the Committee removed the word “patient” from its forward guidance. The removal of “patient” was long anticipated as a necessary precondition for liftoff — Chair Janet Yellen had previously indicated the Fed would not raise rates at any meeting preceded by the word “patient” in the prior statement. However, the Committee simultaneously revised down its projections for growth, inflation, and the pace of future rate increases, and Yellen’s post-meeting press conference emphasised that removing “patient” did not mean the Committee was “impatient”. The updated summary of economic projections showed the median FOMC participant expected just two rate increases in 2015, down from four projected in December, and the median long-run rate projection fell to 3.75 per cent from 3.88 per cent. Crucially, the March statement retained the data-dependency framing: “The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labour market and is reasonably confident that inflation will move back to its 2 per cent objective over the medium term.” With June and September both technically live, markets were watching each successive data release closely to determine which meeting would produce liftoff.
Iran Nuclear Framework and Yemen Geopolitics
Two significant geopolitical developments shaped global markets in April. On 2 April, the P5+1 group and Iran announced a political framework agreement at Lausanne, Switzerland, under which Iran would constrain its nuclear programme in exchange for phased sanctions relief. The framework was significant for oil markets: Iran held an estimated 30 to 40 million barrels of oil in floating storage and could theoretically add up to 1 million barrels per day to global supply relatively quickly once sanctions were lifted, though a final comprehensive agreement remained subject to negotiation and a June 30 deadline. In a countervailing geopolitical development, Saudi Arabia and a coalition of Arab states had launched airstrikes against Houthi forces in Yemen on 26 March, raising concerns about regional stability and a potential supply disruption from the Arabian Peninsula. While Yemen itself was a relatively minor oil producer, the conflict’s proximity to key shipping lanes and the involvement of Saudi Arabia — the world’s largest exporter — kept a geopolitical risk premium in oil prices. Brent crude traded in a range around US$55 to US$65 per barrel through April as these competing factors balanced out.
Strong Dollar; Q1 Earnings Headwinds
The US dollar index reached its highest level in approximately 12 years during early April, reflecting the divergence between the Federal Reserve’s expected policy normalisation and continued easing by the European Central Bank and Bank of Japan. The strong dollar was a material headwind for US multinational companies in the first-quarter earnings season: companies ranging from Procter and Gamble to McDonald’s to IBM reported significant revenue and earnings hits from unfavourable currency translation. The dollar’s strength was also visible in weak US export data and contributed to the disappointing first-quarter GDP outcome. For Jamaica, the stronger dollar had mixed implications: remittance inflows, denominated primarily in US dollars, retained their purchasing power in US dollar terms, but the dollar’s strength against major currencies reflected a tightening of global US dollar liquidity that could affect Jamaica’s external financing conditions if sustained.
Jamaica Mortgage Market in April
Jamaica’s domestic property and mortgage market continued to reflect improving macroeconomic conditions through April 2015. The BOJ’s accommodative monetary policy had lowered domestic interest rates from their elevated levels of 2012 to 2013, and the IMF EFF programme’s fiscal discipline was generating confidence in macroeconomic stability. The NHT’s J$6.5 million individual mortgage ceiling and tiered interest rates of 0, 2, and 4 per cent — with a combined two-applicant ceiling of J$13 million — remained the primary state-supported affordable housing finance mechanism. The spring season is traditionally the busiest period for property transactions in Jamaica, with the diaspora community’s engagement in property purchases typically picking up ahead of summer visits. Commercial lenders were reporting improved mortgage application quality and manageable arrears levels.
Looking Ahead
The next FOMC meeting on 28 to 29 April will provide the Committee’s first substantive assessment of conditions since the removal of “patient”, though June remains widely regarded as too early for liftoff given the Q1 GDP softness. The Iran nuclear deadline of 30 June and the ongoing Greek negotiations will be the two principal geopolitical risk events through the second quarter. For Jamaica, the IMF’s next programme review and the Bank of Jamaica’s monetary policy trajectory will be the principal domestic signposts. The mortgage market’s spring momentum is expected to carry through the first half of 2015 on the back of improving consumer confidence.
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.
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