Daily Market Digest: Oil, Fed speak, RBA minutes

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Oil prices retraced their losses yesterday and closed in the green, followed by the equity markets which closed with strong gains in the US and was followed by a higher close in Asia today.

 Today’s Economic events

  • RBA releases monetary policy meeting minutes
  • Eurozone current account narrows to 19.0 billion, falling below forecasts of 21.3 billion and down from an upwards revised 27.5 billion in January
  • German ZEW economic sentiment rises to 11.2 in April, up from 4.3 in March and beating forecasts of 8.0.
  • Eurozone ZEW economic sentiment jumped to 21.5, beating forecasts of 13.9 and up from 10.6 in March, rising for the third straight month
  • US building permits 1.09mn vs. 1.20mn, down 7.70% in March
  • US housing starts 1.09mn vs. 1.127mn, down 8.80% in March

Coming Up

  • RBA Governor Stevens is due to speak in New York at 1330 GMT
  • BoE Governor Carney is due to speak in the parliament in London at 1435GMT
  • BoC Governor Poloz is due to testify to the standing committee on finance in Ottawa
  • New Zealand GDT price Index

Oil recovers and the Dow Jones breaches 18,000

The initial onslaught by oil bears with saw crude oil prices fall sharply yesterday by over 5.0% at the open saw prices quickly recoup their losses. The short-lived risk off sentiment eased back with US equities leading the way. While Oil prices settled near $41.46 a barrel, recovering strongly, US equities closed higher. The Dow Jones Industrial Average closed at 18004.16, gaining 106.7 points while the S&P500 closed at 2094.34, up 0.65% higher for the day. The risk on rally spurred Asian equity markets which also posted strong gains in today’s trading. The Nikkei225 closed with 3.68% gains while the Shanghai Composite saw a modest gain of 0.31% for the day. European markets were also seen trading higher with the earnings season underway.

But taking a contrarian view was Mark Dowding, co-head of BlueBay Asset, who remains skeptical of the price moves in Oil and believes there could be disappointment ahead with production quotas failing to materialize.

we continue to see a number of economic risks… and with investor positioning seeming to be overweight in risk assets and increasingly complacent, we see the risk of a reversal as growing~ Mark Dowding, BlueBay Asset

The currency markets also saw Oil-linked currencies posting gains. USDNOK fell 0.70% at 8.16 while USDCAD is down 0.30% at 1.275 after posting a nine-month low at 1.2742 previously.

Fed speak winds up

Fed officials winded up their speaking engagement yesterday ahead of the upcoming FOMC meeting on April 27th. Boston Federal Reserve President, Eric Rosengren said that the central bank is set to hike interest rates more rapidly than investors expect. The futures markets are looking at only one more rate hike from the Federal Reserve. Rosengren said that US inflation was now much closer to the Fed’s goal downplaying the weak economic growth in the US during the first quarter. The comments from Rosengren came after earlier yesterday; New York Federal Reserve President William Dudley said that the Fed would remain careful in hiking rates. Speaking at a conference, Dudley said that

Monetary policy adjustments are likely to be gradual and cautious as we continue to face significant uncertainties and headwinds to growth from the financial crisis have not fully abated” ~ William Dudley, NY Fed President

RBA meeting minutes reveals discomfort on AUD exchange rate

The RBA’s meeting minutes from the April meeting showed that the central bank expects inflation to remain low, heightened by growing uncertainty surrounding the global markets. The minutes said that with the Fed taking a less than the gradual approach to hiking rates, the AUD’s exchange rate appreciation was detrimental to inflation.

“Members noted that an appreciating exchange rate could complicate progress in activity rebalancing towards the non-mining sectors of the economy,” ~ RBA Meeting Minutes, April 19, 2016

Australia’s quarterly inflation data is expected to be released next week on April 27th. Headline inflation fell to 0.40% in the fourth quarter of 2015, down from 0.50% previously while the trimmed mean CPI surged to 0.60% in the quarter, up from 0.30% previously. AUSDUSD remains trading near a 10-month high with early Asian session sending AUDUSD to post a new session high at $0.7802.

Institutional Call of the day – USD/JPY, Morgan Stanley*

Morgan Stanley is expecting USD/JPY to rise to 112.50 on improved risk appetite led by a short-term rebound and expects to sell USD/JPY at 112.50. MS notes that “upbeat global risk appetite driven by the Fed’s broadened mandate reducing the global USD shortage has put Japan’s JPY-supportive repatriation flow to hold for now.”

USDJPY (109.2) gained 0.38% for the day, posting a session high at 109.48.

* Institutional Call of the day is not a recommendation or an endorsement by Orbex.com to buy or sell


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