US equities retraced modestly overnight after the US Fed kept interest rate unchanged but stayed on course for “further gradual increases” consistent with “sustained expansion of economic activities”. The US dollar strengthened against most of its peers in G-10, particularly versus the Japanese Yen and the Euro.
Hopes were raised for less monetary tightening in near future after the Democrats took the House of Representatives. However, a more hawkish stance was reflected in the FOMC statement and told a different story, a rise at the next interest rate decision is highly likely. In the meantime, markets may remain sensitive to any evidence that associates with further economic expansion, and the strength of the US dollar may continue to influence investor thinking in the short run.
The China and UK economic data due today are potential market movers for regional shares and currencies. Yesterday the China Trade balance showed a 15.6% rise in exports year on year, defying many investors’ expectations of a slowdown under the influence of a trade war. Hence, the China inflation readings due this morning are crucial in the eyes of analysts. Any deviations from market expectations could spark a repositioning in the Shanghai and Hong Kong stock markets, and possibly move the off-shore Chinese Yuan. On the other hand, UK GDP and Industrial Production due tonight could support the recent rally in the British Pound if accelerating growth is confirmed. A lift in UK economic activity may also help the Pound in appreciating against the Euro if the Italian budget issues drags on, while more positive news on a soft Brexit could surface.
A stronger US dollar weighed on commodity prices overnight. Gold prices slid and oil prices potentially continued a bearish trend. Key industrial metals were mixed. Copper edged lower and aluminium rose slightly. The pressure on commodity markets could remain until President Trump and President Xi meet at the G-20 summit by the end of this month. However, a bounce in investor buying is possible if market sentiment improves or risk appetites extend across different asset classes.