Spreadex Market Update
FOMC Minutes Confirm Support For Smaller December Hike
The US Dollar turned heavily lower yesterday and is under pressure again today on the back of the back of the November FOMC minutes released yesterday. The minutes struck a more dovish tone than those of previous meetings with most fed members agreeing that smaller hikes would likely be appropriate soon.
Concerns over the impact tightening was having on the US economy were cited as the many drivers for a shift in pace. However, the majority of Fed members were in favour of continuing with tightening, albeit at a slower pace, given that inflation is still well above target. On the back of the minutes, market pricing has swung back in favour of a smaller hike in December, pulling USD lower near-term.
Key Factors for Today
- USD falls on dovish FOMC minutes – smaller December hike now seen
- Equities mostly higher on USD drop – some concern over fresh China lockdowns – story to be monitored
- JPY and GBP lead in FX as USD fall deepens
- Metals rebound – oil hurt by china lockdown news
Coming Up
- US markets offline for Thanksgiving
- GBP - BOE’s Ramsden, Pill and Mann speak
- NZD – NZ Retail sales
Equities Boosted by Weak USD, Shrug off China Lockdown News
Equities markets took advantage of the fresh downside in USD yesterday with indices across the board rallying. The prospect of a shift in Fed tightening is a major supporting factor for risk sentiment. However, traders are today grappling with news of fresh lockdowns in China as stay-at-home measures return in certain areas in response to the recent uptick in covid cases. Market impact has been quite contained for now, given that restrictions are only in place for five days. However, if further regions are added or if the duration is extended, this might well start to eat into risk sentiment.
PMIs Beat in UK & EU, Miss in US
UK and EU stocks were also helped by a slew of better-than-forecast PMI readings while, in the US, fresh weakness in PMI readings has further increased the chances of a smaller December Fed hike in traders’ eyes. Despite still elevated inflation fears for the US economy are keeping USD pressured here which should allow equities room to move higher.
JPY & GBP Lead in FX
In FX, the fall back in the US Dollar has seen JPY materialising as the strongest performer over early European trading on Thursday. With some caution around China lockdown news, the rally in JPY is likely partly due to safe haven inflows also. GBP is also trading well today, extending its recent run of better demand on the back of the new UK budget which looks to have been well received by investors and UK traders.
Metals Rebound, Oil Falls on China Demand Fears
In the metals and commodities space, both gold and silver rebounded firmly yesterday amidst the downturn in USD. With US traders off today for thanksgiving and most likely to extend across tomorrow, flows are expected to be light across the remainder of the week though metals should stay supported while USD is under offer. Crude bulls were unable to benefit from the USD downtrend yesterday. Fresh fears over China lockdowns are causing uncertainty in the demand outlook sending crude futures lower, despite a further, large inventories drawdown reported by the EIA yesterday.
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