A number of factors have come together today to spark a big 5% plus gain for WTI crude oil. The continuing rebound in China markets has removed some concerns about demand, easing one of the bigger headwinds. Then a surprise drop in US DOE inventories and growing US demand provided a big tailwind that sparked a surge in WTI that has carried through the rest of the day. A drop in USD has helped oil as well, along with metals like gold and silver. The drop in USD and second straight day of gains for US stocks was precipitated by another round of soft data. Core consumer prices were a bit lower than expected, following on from yesterday’s soft retail sales and industrial production. While none of these announcements have been weak enough to knock the Fed completely off its course toward normalizing interest rates, it could give enough members pause that the FOMC could delay liftoff for another meeting or two. With the FOMC news finally due out tomorrow, traders are likely to remain fixated on the Fed for the next 24 hours. Nothing has happened so far this week to change the main conclusions of what I wrote in my main FOMC preview note Why it’s nearly time for the Fed to start raising interest rates, but I would like to add a few comments based on recent news. Although traders seem to have taken this week’s US data as dovish, boosting stocks and sending USD lower, any delay may only be a temporary reprieve. Wage inflation in both the US and UK came in higher than expected, a sign inflation pressures are building. As the oil crash impact dissipates over the next six months, attitudes about inflation could change dramatically, veering away from current complacency. FOMC member projections could be very significant as well. In particular, keep an eye on GDP. I’ve been saying for much of this year that interest rate liftoff would likely be signalled by an increase in Fed member forecasts. Since both Q1 and Q2 GDP have been revised significantly upward and today the OECD raised its US GDP forecast, don’t be surprised if the Fed raises its GDP estimate as well. If the Fed does not raise rates this month, a GDP forecast upgrade could be signal that liftoff is coming soon. Less likely but other potential hawkish signals would be an increase to the inflation forecast or a reduction in the forecast unemployment rate. On the other hand, reductions in GDP or inflation forecasts or a rise in the unemployment rate forecast could be seen as dovish by traders. Also, keep an eye on the dots table of Fed funds projections. I would expect nearly everyone to be forecasting 1 increase to 0.50% for this year, and a couple calling for no change. It will be interesting to see if anyone is still calling for 0.75% (2 hikes) this year. For the first time, 2016 year end fed funds rate forecasts could also influence market sentiment, particularly if there is a rate hike this time. Traders may look to 2016 for signs of how aggressive the Fed plans to take rates upward. Currently the range is very wide from 0.25% to 3.00% with the main cluster between 1.25 and 1.75%. If we get one hike in 2015 that would mean 3-5 increases in 2016 or about one every other meeting. The dot plot may indicate if this outlook has changed. Between now and the Fed meeting there are a number of economic announcements scheduled. The Republican debate is likely to be more of a sideshow although it will be interesting to see if any of the candidates mention anything about the Fed decision. Housing starts and Philly Fed Thursday morning could spark some attention but neither are likely to change anybody’s mind at the FOMC. Other markets may also be active on news today. New Zealand GDP could spark another flurry of trading in NZD as it could influence speculation on how many more rate cuts could be coming from the RBNZ. GBP rallied today on the UK inflation figures and could be active again on the UK retail sales report. The Swiss National Bank is also holding a meeting Thursday which could influence trading in CHF pairs. The street is not expecting the SNB to take any action ahead of the Fed, and it’s unlikely they would want to make any more waves but if it were to take any precautionary steps markets could react in a big way. Corporate News There have been no major corporate announcements after the US close today. Economic News Significant announcements released overnight include: US DOE crude oil inventories (2.1 mmbbls) vs street 1.75 mmbbls US DOE implied oil demand 16607 mmbbls up from previous 16227 mmbbls US DOE gasoline inventories 2.8 mbbls vs street (0.5 mmbbls) US API crude oil inventories (3.1 mmbbls) vs street (0.3 mmbbls) US consumer prices 0.2% as expected US CPI ex food and energy 1.8% vs street 1.9% US real average weekly earnings 2.3% vs previous 2.0% US NAHB housing market index 62 vs street 61 UK jobless claims change (1K) vs street (5K) UK rolling 3M employment change 42K vs street 18K vs previous (63K) UK unemployment rate 5.5% vs street 5.6% UK average weekly earnings 2.9% vs street 2.5% OECD 2015 global GDP forecasts World cut to 3.0% from 3.1% US raised to 2.4% from 2.0% China cut to 6.7% from 6.8% Japan cut to 0.6% from 0.7% Eurozone raised to 1.6% from 1.5% Canada manufacturing sales 1.7% vs street 1.1% Eurozone consumer prices 0.1% vs street 0.2% Eurozone core CPI 0.9% vs street 1.0% Upcoming significant announcements include: 8:45 am AEST NZ Q2 GDP street 2.5% 9:50 am AEST Japan trade balance street (¥540B) 9:50 am AEST Japan exports street 4.3% 9:50 am AEST Japan imports street (2.5%) 8:00 pm EDT US Second Republican Party Presidential Candidates debate 8:30 am BST Swiss SNB lower band (1.25%) no change expected 8:30 am BST Swiss SNB upper band (0.25%) no change expected 8:30 am BST Swiss SNB deposit rate (0.75%) no change expected 9:30 am BST UK retail sales street 3.8% 9:30 am BST UK retail ex auto & fuel street 3.8% 10:00 am BST Eurozone construction output previous (2.3%) 1:00 pm BST Poland retail sales street 1.5% 8:30 am EDT US housing starts street 1,160K 8:30 am EDT US building permits street 1,159K 8:30 am EDT US jobless claims street 275K 10:00 am EDT US Philadelphia Fed street 5.9 10:30 am EDT US natural gas street 73 BCF 2:00 pm EDT US interest rate 0.25% no change expected 2:30 pm EDT US FOMC Chair Yellen press conference CMC Markets is an execution only service provider. 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