Market In-Review: Dovish Fed Fails To Stimulate Markets

• Fed keeps rate unchanged, refrains from committing on liftoff schedule
• Governor Yellen emphasizes dovish Fed policy expected even after liftoff
• Increased cash withdrawals in Greece stirs concern of run on banks
• Market momentum halted on renewing Greek concerns
• Global stock indices score soft weekly prints

The U.S. Federal Reserve, once again, preferred the road more travelled by, keeping rates unchanged on Wednesday's decision. The U.S. economy is improving, duly noted, and the Fed isn't blind to this fact, with the rate announcement seeing a moderate expansion in economic activity, first quarter gains in job gains and diminishing underutilization of labor resources. Nevertheless, the Fed's outlook now sees a longer period of 0% rates, with ambiguity regarding what would lead it away from this path. Notably, the Fed's projection materials on interest rates, AKA "The Fed's dot plot", indicated that FOMC members revised downwards their projection on rates.

In the press conference following the rate announcement, Governor Yellen's remarks expressed a similar tone, saying that the FOMC committee "continues to judge that the first increase in the federal funds rate will be appropriate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2% objective over the medium term." These conditions were said to have "not yet been achieved." Yellen further emphasized that "the importance of the initial increase should not be overstated" as monetary policy will "likely remain highly accommodative for quite some time after the initial increase."

Market response to the Fed was quite evident, with decreases throughout the U.S. sovereign yield curve. The yield of the U.S. 2 year bond dropped to as low as 0.65%, close to its lowest in three weeks. The Greenback itself also saw quite an unusual weakening with EURUSD spiking over 0.9% over the course of the Fed's announcement and Yellen's comments. Naturally, a vivid response was also recorded at the stock markets, leading the S&P 500 (SPY) up some 0.4%. Following a rather volatile session, however, the daily gain for the S&P concluded with +0.2% and when the DAX started pricing the news, the following day, it actually opened a tad lower.

…and back to Greece

Evidently, the dovish Fed effect was short-lived. As the dust of its stimulus faded, global market attention soon went back to Greece. Friday saw increasing concerns in Greece push locals into withdrawing an estimated EUR 1.5 bln from the banks. The European Central Bank did agree to aid the country regain stability, increasing the amount of ELA lending available to the banks in Greece. The day saw the Athens stock exchange conclude with a 0.6% gain, but considering the fact that it was down more than 11% during the week as a whole, well, this isn't very encouraging. The DAX lost 0.54% on Friday, concluding a weekly loss of 1.4%, and close to -4% since the start of the month.

At 0.75%, the weekly gain for the S&P 500 is quite a moderate one. On the other hand, reaching an intraday level of 2126.65 points marked the highest the index has been at since late May and a mere 0.4% from its highest ever. The Dow (DIA) added 0.65% during the week and the Nasdaq (QQQ) increased some 1.3%.