US stocks and bonds have turned downward while USD is rallying in the wake of today’s FOMC minutes that came in hawkish. The minutes made it clear that with inflation pressures building, if the economy picks up in Q2 and employment remains strong many Fed members favour a rate increase at the June meeting.

Some members expressed concern that there may not be enough positive data to support a move but last week’s strong retail sales and this week’s strong retailer earnings and industrial production have put those fears to rest.  Concerns that markets may not be pricing in a June rate hike may also be alleviated quickly as the probability of a hike priced into fed funds jumped to 26% from 16% after the minutes came out. A rally in USD and a moderate decline in stocks also indicate markets are quickly adjusting to the prospects of a more hawkish Fed.

Some Fed members expressed concern that with inflation rising the Fed may be falling behind the curve on rate hikes  (speakers this week have suggested a delay now could mean more aggressive increases in 2017).

Some members also suggested holding off in June despite a strengthening economy could send the wrong signal or undermine the Fed’s credibility. (This is a real concern. Bank of England Governor Carney suggested that UK rates could increase once unemployment fell below 7%. Today UK employment was reported at 5.1% and Mister Dithers has still done nothing.) It’s important to remember that interest rate hikes are a sign of a strong economy and a positive environment for corporate earnings which traders appear to be recognizing as US indices trimmed their losses following an initial shakedown.

GBP has also been active today. Sterling rallied against USD and EUR after an IPSOS poll showed the Remain side with a big 55%-37% lead which came as a surprise as it is so different from other recent polls. GBP started to drop back with USD climbing and could stage significant swings in both directions depending on Brexit campaign developments.

AUD and NZD have been hit hard overnight both losing 1.1%-1.4% with both gold and copper getting hit hard on the USD rally which may impact trading in mining stocks today. CAD and NOK have also been falling but at a 0.8% pace.  Australia markets could be active today around Australia’s monthly report which is expected to see job growth fall back toward 12K from 26K.

Crude oil dropped back today about 1.0% after DOE inventories fell less than expected. A bigger than expected drop in Gasoline inventories helped to cushion the blow in that market.

Tomorrow could potentially be an even bigger turning point for US trading and Fed speculation. So far this week, hawkish comments have come from non-voters this year, but Thursday brings comments from 2 of the Fed’s Big 3, Vice Chair Fischer and NY Fed President Dudley. Their comments could confirm or refute whether the Fed is heading for a June rate increase and could potentially drive action across indices, bonds and currencies.  


Corporate News

Cisco Systems    $0.57 vs street $0.55, guides next Q to $0.59-40.61 above street $0.58


Economic News

Significant announcements released overnight include:

US DOE crude oil inventories        1.3 mmbbls vs street (3.2 mmbbls)
US DOE gasoline inventories         (2.5 mmbbls) vs street (1.0 mmbbls)

UK jobless claims            (2k) vs street 5K
UK 3M employment change        44K vs street 0K vs previous 20K
UK average weekly earnings        2.0% vs street 1.7%
UK unemployment rate            5.1% as expected

Eurozone consumer prices        (0.2%) as expected
Eurozone core CPI            0.7% as expected


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)  

9:50 am AEST        Japan machine orders        street 0.8%
11:00 am AEST        NZ consumer confidence    previous 120.0

11:30 am AEST        Australia employment change    street 12K vs previous 26K
11:30 am AEST        Australia full time        previous (9K)
11:30 am AEST        Australia part time        previous 35K
11:30 am AEST        Australia unemployment rate    street 5.8%

6:30 am BST        France Q1 unemployment rate    street 10.2%
6:30 am BST        France Q1 unemployment chng    street (24K) vs previous (47K)

9:30 am BST        UK retail sales            street 2.5%
9:30 am BST        UK retail ex auto & fuel        street 2.0%

10:00 am BST        Eurozone construction output    previous 2.5%

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