Yesterday’s FOMC Minutes brought exactly the lightbulb moment we not only expected but discussed at length since their meeting earlier this month. The only problem, how poor Eurozone growth and sentiment data has been. Even though the Federal Reserve has telegraphed that they are willing to let inflation run past their 2% target without forcing a faster pace of rate hikes, the dollar remains elevated.
There have been some sharp moves in the markets in the first half of Wednesday’s session with global stock indices, Turkish Lira, euro and pound all tumbling and safe-haven yen, Swiss franc and to a lesser degree gold all rallying.
Boosted by the oil price rally, the Canadian dollar remains fairly supported despite the Bank of Canada this week reiterating that it will be cautious with respect to future hikes amid concerns over trade issues. Still, the central bank tried to sound optimistic about the economic outlook and if today’s inflation and retail sales figures show positive surprises then this could support the CAD further. But if they disappoint badly then we could see a sharp sell-off as investors’ expectations over the next BOC rate hike is pushed further out.
Today’s weaker-than-expected UK inflation figures follow the slightly disappointing wages data we saw yesterday and as a result, the pound is falling for a second consecutive day. As we had suspected, the FTSE's selling on Monday saw no further follow-through and the index has now hit a new high on the week, no doubt supported by the weaker pound.
The U.S.-led strikes against Syria turned out to be a non-event as far the markets are concerned and fortunately there were no reports of casualties. Only three targets were hit and the wave of strike action has already been declared to be over -– at least for the time being, anyway. However, investors still remain wary of the potential for tensions to escalate between Russia and the West.
U.S. futures are back in negative territory ahead of the open on Wednesday, as stocks continue to fluctuate against the backdrop of a potential trade war. Investors are also awaiting the release of the FOMC minutes from the March meeting.
With geopolitical theatre (trade war posturing, central bank comments, FBI raids of Presidential lawyers, etc) grabbing all the headlines this week, it’s easy to forget that there is still some potentially market-moving economic data scheduled for release.
All is quiet on the Southeast front. Chinese President Xi Jinping soothed markets last night in his keynote speech at the Boao Forum. In a great deal of showmanship, he gave global markets exactly what they wanted and needed by promising to raise the country’s limits on foreign investment and lower import duties on products such as cars.
There are a number of key events this week but inflation and the path in which the Fed is tightening remains at the forefront. This has literally taken the stability and liquidity out of the market which in turn has made other situations, i.e. the trade war, have a greater and more immediate impact on market conditions. CPI, a leading inflation indicator, is due Wednesday morning at 7:30 a.m. Central.