Fed tries to stay ahead of the (yield) curve

 

Prepared by Jeff Halley, Senior Market Analyst

 

Fed tries to stay ahead of the (yield) curve

 The Federal Reserve (FOMC) minutes passed with barely a flutter from markets overnight. Wall Street closed almost unchanged for the second day running, with currency and gold markets following suit. This week, the only game in town is the US-China trade talks with everything else relegated to B-team status.

The FOMC minutes signalled that the Fed would finish normalising its balance sheet by the end of the year. Interestingly, a dig through the text implies they would be prepared to hike rates if inflation accelerates and that the majority of governors judge rates to be neutral right here: i.e. no easing bias.

We would expect more of the same in Asia today with markets consolidating as the world holds its collective breath on the trade talks. There’s a lot of optimism baked into global markets on the outcome of the negotiations and precisely zero detail on the actual result. A sub-optimal outcome could make for a potentially ugly correction in equities and currencies in particular.

Regional highlights today are the Australian employment data this morning and an Indonesia rate decision this afternoon. We expect no movement on the latter as the central bank won’t rock the boat ahead of the Indonesian elections on 17 April.

 

FX

Both the euro and the pound gave back some of the previous day’s gains overnight as no Brexit breakthrough happened during PM May’s latest visit to Brussels. A glance across the major currencies against the dollar shows an almost unchanged scene versus the previous day, implying the FX markets are well and truly in wait-and-see mode.

Australia Employment data at 0830 Singapore should provide some short term volatility in the Australian dollar, but we expect this to be fleeting.

 

Equities

The S&P and Dow Jones closed higher by a tiny 0.2% for the second day running. This should be enough to signal a positive start to regional bourses, albeit not a very strong one. As I’ve said, there’s a lot of good news baked into equity prices regarding the trade talks. Stocks will be vulnerable to headlines and traders should stay nimble.

 

Gold

Gold popped higher to USD1,346 an ounce overnight before falling back to close at USD1,338. Risks around the trade talks have seen gold-buying from the get-go in Asia this morning with it trading gently higher to USD1,340.

he Relative Strength Index (RSI) technical indicator entered overbought territory implying some consolidation was on the cards after the recent rally.

 

Oil

Oil surged higher again overnight with Brent up 1.1% at USD67.20 a barrel and WTI climbing an impressive 1.5% to USD57.10 a barrel. Trade talk hopes, Saudi supply squeezes and Venezuelan disruptions were rolled out as the usual gang of excuses.

The RSI on both contracts is in overbought territory, implying at least a consolidation at these levels. Again, a lot of excellent trade talk news is baked into oil prices at these levels, and some caution would be well warranted.

 

 

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Andrew Robinson

Andrew Robinson

Senior Market Analyst at MarketPulse
A seasoned professional with more than 30 years’ experience in foreign exchange, interest rates and commodities, Andrew Robinson is a senior market analyst with OANDA, responsible for providing timely and relevant market commentary and live market analysis throughout the Asia-Pacific region. Having previously worked in Europe, since moving to Singapore he worked with several leading institutions including Bloomberg, Saxo Capital Markets and Informa Global Markets, proving FX strategies based on a combination of technical and fundamental analysis as well as market flow information. Andrew began his career as an FX dealer with NatWest and the Royal Bank of Scotland in the UK.
Andrew Robinson

Latest posts by Andrew Robinson (see all)