Choppy seas aheadUS stocks rebounded in a typical manner since the Bull Run from April, where losses were confined to two sessions. If the pattern were to stay indefinitely, we would expect prices to move higher over the next few sessions to a higher high, possibly to the 2000 round figures on the S&P 500. There were many reasons for US stocks to sell-off overnight, and yet market participants chose to heed what wasn’t mentioned, underscoring the unwavering faith in US stocks. Investors ignored warnings from the FOMC minutes overnight, which highlighted that market participants may be too complacent when it comes to the recent trend, and that they may be ill -prepared for uncertainty in the economic outlook and monetary policy. QE could end by October with a final reduction of $15Bn, if the economic outlook holds, suggesting that the stimulus tap that powered stocks over the last 6 years may finally come to a trickle. Meanwhile the minutes also suggested that Fed officials, while remaining spilt over the timing of the first rate hike, were coming closer to an agreement. No specific time line was revealed however. Pertaining to the labour market, officials highlighted that the slack remains elevated, and the official unemployment rate may be downplaying the current state of affairs, judging from the high level of part- timers. Investors could choose to read it either ways that slack in the jobs markets may weigh on the economic outlook, or that it means lower interest rates are here to stay indefinitely. It is obvious markets chose the latter, especially since no specific timeline was affixed to an interest rate hike.
Forex NewsIn the FX markets, the lack of clarity as to when the Fed may raise interest rates sent the dollar tumbling with 10 year treasury yields. Unemployment claims is due for a release tonight with analysts expecting a slight uptick from the week before. FOMC member Fischer, a voting member of the FOMC is also due to speak later tonight. Commodity currencies like the Aussie and the Kiwi rallied against the dollar following the release of the FOMC minutes. The potential of sustained low interest rates in the US supported the carry trade. We are expecting Australian payrolls data this morning. How the Aussie dollar trade will hinge on how many full timers joined the market, as compared to the recent trend of part-timers making up gains. Traders will also be keeping an eye on the trade balance figure out of China today. The release which has a tentative schedule tends to be released before noon. After a soft CPI figure yesterday which highlighted slower demand in China, a poor trade balance figure will aggravate sentiment and drag Asian indices and the Australian unit lower. US oil fell for a 10th straight session even as crude inventories fell 2.37m barrels last week.
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