The dollar got crushed across the board after Fed Chair Powell delivered a very clear confirmation that the Fed will be patient on future rate increases and that they are prepared to adjust the balance-sheet normalization. Stocks soared before the Fed after strong earnings results from a wide range of companies in various sectors. The Fed’s dovish signal was the icing on the cake that helped take the S&P 500 out of bear market territory. Asia should be poised for a strong open, but that could be tested as China reports key manufacturing data and Thursday is the deadline for Chinese companies to report any profit warnings. This earning season in China, technology, communication, and financials have all been the biggest victims of the China slowdown.
The US dollar was heavily sold as the case for raising rates have diminished as the Fed has seen cross-currents on the outlook. The Fed also removed the reference to gradual rate increases. Regarding the balance sheet, the Fed clarified that the path forward is that they are willing to adjust it with occasional changes. Size of balance sheet will be driven by the market and they are evaluating the appropriate timing for the end of the runoff. As expected, he refused to answer specifics on targets for the balance sheet.
European headlines were plentiful but delivered a mixed message regarding euro zone economy. German data showed that inflation failed to accelerate as the growth outlook remains weak. Germany’s Economy Ministry cut the 2019 GDP growth forecast from 1.8% to 1.0%, which would be slowest pace seen in six years. Earlier in the morning, Bloomberg reported that the FX Macro Fundamental Scorecard signaled a new bearish bias with the euro, hinting at a growing bias for the downside, that was short-lived after the FOMC fireworks, the euro rose to a 2 ½ week high against the dollar. Expectations for the ECB to raise rates at the December meeting did rise today to almost a coin flip.
Oil prices rallied over 1.8% after the EIA weekly report showed crude stockpiles rose less than expected. Gasoline inventories declined as refiners eased production. The four-week average for gasoline also increased by the most since 2003. US stockpiles may continue to fall as Saudi Arabia continues to trim exports to the US. WTI however remains capped by the $55 level.
The yellow metal’s bullish rally is catching fire as the Fed’s dovishness was confirmed and global slowdown concerns are likely to remain in place until we see a clear sign that the US will not increase tariffs against China.
A tale of two earning seasons was the story for companies who reported before the close and after. Before the open, risk-on trading stemmed from the robust earnings results from Boeing, Alibaba, health insurer giant Anthem, payroll company ADP, General Dynamics and AMD. After the close, mixed results was the dominant theme. Visa and Facebook both beat on the top and bottom line, while Qualcomm saw soft revenue results, Microsoft had a small earnings miss, and Tesla consecutive quarterly profits were overlooked as the outlook came in rather bleak for their higher end models. S&P futures maintained most of their gains following the flurry of after-hour earnings results.
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