Stocks and oil rebound as Brainard stays dovish, more China data today
19:00, 11 September 2016
· By CMC Markets
The big selloff that gripped north American markets Friday and then followed through to Asia Pacific and European markets on Monday has subsided enabling North American indices plus energy commodities to bounce back into the green.
Monetary policy and specifically speculation over whether the Fed will raise interest rates next week or not continued to dominate market action. Between the ECB shifting into neutral, hawkish Fed talk and indications the Bank of England may have overdone its recent stimulus, the door to a potential rate increase had been swinging open but today the doves fought back. Morning Fedspeak was split between Atlanta Fed President Lockhart reminding traders the Fed does not report to the markets and urging the Fed consider a rate hike this month while Minneapolis Fed President Kashkari suggested there’s no rush. Meanwhile Donald Trump accused Fed Chair Janet Yellen of taking her marching orders from President Obama.
As expected, comments from Fed Governor Lael Brainard, the last speaker before the pre-meeting blackout period started, settled the score for now in favour of the doves, staging a successful goal line stand. She found the case for premature tightening to be “less compelling” and indicated she would prefer the Fed to focus on avoiding downside risks than slow employment gains or undershoot on inflation. She also reminded the street she expects the neutral rate to be lower this cycle.
The street took her comments to suggest that there’s the potential for an epic battle shaping up between hawks and doves at the Fed next week that could see a number of dissenters regardless of the decision. Stocks were choppy but ended higher as traders weighed the potential for ongoing easy money with concern a dovish Fed means a weaker economy.
Fed funds futures went from pricing in a 28% chance of a September hike down to 20% before rebounding toward 22%, a dovish reaction. Crude oil bounced back having successfully retested $45.00 support.
Today’s Asia Pacific trading may be mixed between a relief rebound on momentum from today’s US trading action and reaction to today’s China data. Retail sales and industrial production reports may influence Chinese stocks and China sensitive markets like Australia stocks, AUD, CAD, copper, oil and more. Before that, AUD and NZD could be active on local data including New Zealand food prices. Tomorrow brings inflation reports for Germany and the UK and a quiet day for news in North America.
There have been no major corporate announcements after the US close today.
Significant announcements released overnight include:
There were no major announcements in North America or Europe today.
Upcoming significant economic announcements include:
(Note: 11:30 am in Sydney/Melbourne is currently 1:30 pm in Auckland, 4:30 pm in Vancouver, 7:30 pm in Toronto/Montréal, 12:30 am in London and 8:30 am in Singapore)
8:45 am AEST NZ Food prices previous (0.2%)
11:30 am AEST Australia NAB business conditions previous 8
11:30 am AEST Australia NZB business confidence previous 4
12:00 pm AEST China industrial production street 6.2%
12:00 pm AEST China retail sales street 10.2%
7:00 am BST Germany consumer prices street 0.4%
8:30 am BST Sweden consumer prices street 1.2%
9:30 am BST UK consumer prices street 0.7%
9:30 am BST UK core CPI street 1.4%
9:30 am BST UK retail prices street 1.8%
9:30 am BST UK producer input prices street 8.2%
9:30 am BST UK producer output prices street 1.0%
9:30 am BST UK house prices previous 8.7%
10:00 am BST Germany ZEW current street 56.0
10:00 am BST Germany ZEW expectations street 2.5