Yesterday’s strong finish to US trading that saw the S&P close up 1.0% and the Dow close up 0.6% fizzled out overnight. Mainland China markets fell 1.0% while European markets are flat with the FTSE up marginally and the Dax down marginally. US index futures are indicating stocks could give back much of yesterday’s gains with Dow and S&P futures trading down about 0.5%. Crude oil is holding steady consolidating yesterday’s big rallies for WTI and Brent.
The main trading action overnight has been in currency markets with traders responding to a lot of commentary out there on monetary policy yesterday and continuing into today.
We’re seeing a big move back into defensive havens particularly JPY and gold. USDJPY has collapsed after breaking the 110.00 round number, while gold has rebounded this morning. JPY advances have been pretty consistent over the last several hours with no indications of any intervention from the Bank of Japan as of yet. Oil sensitive currencies have also been doing well on the commodity price gain with RUB and NOK catching up to CAD’s rebound. CAD could see some positioning today ahead of tomorrow’s Canada employment report.
USD continues to generally trend lower following yesterday’s minutes from the last FOMC meeting. Mixed sentiment about the economic and financial market outlook encouraged the central bank to slow its pace of interest rate hikes with members setting around a projection of 2 hikes likely for this year.
Fed minutes don’t usually contain commentary about future meetings but unusually this time there were discussions about what to do at the April meeting. Some members think an April rate hike would send an unwanted signal of urgency around increases and send a more hawkish signal than they are comfortable with. Others think and April hike could be warranted if economic data remains positive.
Last night St. Louis Fed President Bullard indicated he still sees all meetings as live for a rate decision, keeping the central bank’s options open. He also echoed comments from Boston Fed President Rosengren earlier in the week expressing concern that the markets have been pricing in expectations of less than the two rate hikes which has become the party line at the Fed (even the doves are looking for two). Dallas Fed President Kaplan indicted overnight the time for gradual interest rate normalization is approaching, and that the main disagreement among Fed members is over the timing of rate increases.
Overall, this suggests that while there may be a spirited discussion on what to do, an April interest rate hike remains unlikely but the Fed may use the opportunity to signal toward a June increase followed by December before and after the US Presidential election campaign.
Developments in Europe have also been in focus today. Voters in the Netherlands shot down a free trade deal between the EU and Ukraine by a 61%-38% margin in what has been seen as a vote of non-confidence in EU policies and direction. This news plus dovish talk from ECB members on the release of the central bank’s annual report has put a lid on EUR’s advance for not. The Dutch vote has been seen as supportive of the Brexit cause increasing uncertainty and sending GBP lower again relative to EUR. Interestingly, GBP is holding above yesterday’s lows relative to USD, suggesting that Brexit fears are once again getting overblown.
Looking ahead today EUR may remain active with minutes from the last ECB meeting and comments from ECB President Draghi scheduled over the next few hours. The IMF’s economic outlook due later this morning may also spark trading activity in currencies and stocks. Later today, a conference featuring Fed Chair Yellen and her three predecessors may keep the spotlight on monetary policy.
There have been no major announcements in North America so far today.
Significant announcements released overnight include:
UK Halifax house prices 10.1% vs street 9.5%
Spain industrial output 2.2% vs street 3.0%
Norway industrial production (1.8%) vs previous (0.2%)
Greece unemployment rate 24.4% vs street 24.0%
Australia construction PMI 45.2 vs previous 46.1
Upcoming significant announcements include:
12:30 pm BST ECB meeting minutes
3:00 pm BST ECB Draghi speaking
8:30 am EDT US jobless claims street 270K
9:30 am EDT IMF World Economic Outlook
10:30 am EDT US natural gas street 7 BCF
5:30 pm EDT FOMC Yellen, Bernanke, Greenspan and Volcker speaking