Stock markets around the world have continued their retreat overnight and into this morning. US index futures are down 0.25%. Markets in Europe are mixed with Italy’s FTSE MIB up 1.4%, the FTSE up 0.3% and the DAX down 0.1%. In Asia, the Nikkei fell 1.2%. 

Earnings continue to drive significant trading action. Facebook was up slightly overnight following a positive report, while Deutsche Bank has been hammered this morning (dragging on the DAX) on an earnings miss. This trading action confirms that markets had priced in high expectations for results this quarter.  

In currency trading, the US dollar continues to get hammered against pretty much everything following a Fed statement that was widely seen as dovish. The central bank maintained its benchmark interest rate with no dissenters as expected. The statement took a dovish turn with the Fed indicating several times that inflation remains below its 2% objective (despite rising oil prices and growing inflation pressures elsewhere). FOMC members also took time to indicate that no changes are planned for its balance sheet it plans to keep reinvesting principal payments until rate normalization is well underway. 

The US dollar has turned decisively downward following the FOMC, which suggests that traders are figuring out that the Fed may not be as aggressively hawkish this year as the street had been thinking. Gold, JPY and AUD are the top performers today, all gaining over 1.0%. Political risk concerns continue to grow following what was reported as a tense and shortened conversation between President Trump and Australia PM Malcolm Turnbull, with the refugee ban and the US pulling out of the TPP causing a lot of friction between the leaders. I think there’s a sense that if Trump can't get along with a natural ally like Australia, there could be a big storm coming which could really disrupt global trade.    

There’s also a big spotlight on the UK today. The Bank of England made no changes to interest rates or QE, but its statement and outlook took a more hawkish tone. The MPC raised its 2017 GDP forecast for the UK to 2.0% from 1.7% and indicated it sees consumption falling less than previous thought. Because of the stronger growth, members indicated they have less tolerance for rising inflation while others felt that there is room for unemployment to fall further before action is needed.  Overall this suggests that the Bank is likely to remain in neutral for a while with neither additional monetary stimulus nor a shift in the hawkish direction tightening likely any time soon.  

Sterling has been sliding on the news so far but with the press conference still to come and more Brexit developments on the way, GBP may remain active through the day. Yesterday, the Brexit bill passed its first stage in the House of Commons while Scottish amendments that could have slowed the process were rejected. Today, the government is expected to release a white paper on its Brexit strategy which could also capture a lot of attention from traders. 

Corporate news

Facebook            $1.41 vs street $1.31

Symantec             $0.32 vs street $0.28

Allstate                 $2.17 vs street $1.63

Economic news

Bank of England decision: no change to interest rates or QE as expected

UK construction PMI        52.2 vs street 53.8

Australia trade balance        $3.5B vs street $2.0B
Australia building approvals    (1.2%) vs street (10.8%)

Upcoming significant economic announcements include:

8:30 am EST         US jobless claims        street 250K

10:30 am EST        US natural gas            street (83 BCF)

 

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