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Stocks and oil retreat between hawkish Fed minutes and big Fed speeches

The selloff in stocks that started on the release of FOMC minutes yesterday afternoon continued overnight and has expanded into commodity markets this morning. The Dax is down 1.2% and the FTSE down 1.3% while the Hang Seng fell 0.6%. US index futures for the S&P, Dow and NASDAQ are all trading down 0.3% on follow through after yesterday’s mixed US close.

Crude oil is falling back with Brent and WTI losing 1.0-1.3% as the impact of the USD rally works its way into commodity markets and sparks an overdue trading correction. Oil sensitive currencies have also been falling with RUB down 1.9% while CAD and NOK have fallen 0.4%-0.6%. AUD is also down in that range with copper falling again, while gold is down a similar amount. This action means that Canadian resource stocks may come under pressure again and could drag on the overall S&P/TSX index.     

USD itself has levelled off today, consolidating yesterday’s rally just above 95.00 on the US Dollar Index, this action indicates that unlike stocks and bonds, currency markets were still expecting two rate hikes this year which appear to be fully priced in near current levels. Strong earnings from Wal-Mart this morning confirm robust retail sales in the US.

GBP continues to be the top performing major currency continuing to rally in response to an outlier poll yesterday suggesting a big lead for the remain camp. Gains have been trimmed a bit this morning following a very strong UK retail sales report that shows the Brexit debate is not dragging on the UK economy as much as some people had previously thought.

We could see another round of Fed related trading action today So far this week, hawkish comments have come from non-voters, but Thursday brings comments from two of the Fed’s Big 3, Vice Chair Fischer and NY Fed President Dudley. Traders may look to their comments for confirmation of how soon the Fed could raise rates. Bond markets have gone from pricing in a 5% chance of a June increase last week to 15% yesterday before the minutes to 30% after the minutes, so the street could move swiftly to readjust expectations as needed.

Currency markets may be active over the next few days with a G7 Finance ministers meeting being held in Japan. Some of the talk at these types of meetings centres around currency levels and currency wars, which could influence forex trading. This morning, we’ve had a duel of dovishness of sorts in Scandinavia with Norges Bank’s Olsen leaving the door open to negative rates in Norway (despite oil on the rebound) and the Riksbank’s Skingsley talking about helicopter money. The timing of these positioning moves indicate that G7 developments could have wider implications for forex trading.

Corporate News

Wal-Mart    $0.98 vs street $0.88, same store sales 1.0% vs street 0.5%, sales $115.9B above street $113.2B. Guides next Q to $0.95-$1.08 vs street $0.98.  

Economic News

Significant announcements released overnight include:

UK retail sales            4.3% vs street 2.5%
UK retail ex auto & fuel        4.2% vs street 2.0%

Eurozone construction output    (0.5%) vs previous 2.5%
France Q1 unemployment rate    9.9% vs street 10.2%
France Q1 unemployment chng    (3K) vs street (24K) and previous (47K)

Norway trade balance        NOK 10.6B vs previous NOK 9.1B

Australia employment change    11K vs street 12K vs previous 26K
Australia full time        (9K) unchanged
Australia part time        20K vs previous 35K
Australia unemployment rate    5.7% vs street 5.8%

Japan machine orders        3.2% vs street 0.8%
NZ consumer confidence    116.2 vs previous 120.0

Announcements due later today include:

8:30 am EDT        US jobless claims        street 275K
8:30 am EDT        US Philadelphia Fed        street 3.0

9:15 am EDT        FOMC Fischer speaking
10:30 am EDT         FOMC Dudley speaking

10:30 am EDT        US natural gas            street 78 BCF

May 19-21        G7 finance ministers meet in Japan


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