- A December rate hike is in the cards again
- USD moved higher
- Draghi might buy corporate bonds
- Oil finds platform to bounce back
- Positive outlook for smaller US banks
The possibility of a rate hike in the US in December is back on the table after yesterday's rather hawkish comments by the Federal Open market Committee.
With the likelihood having increased, the question now is how big will it be, says Tareck Horchani from Singapore, reporting that the USD reacted well to the announcement.
Saxo Bank head of forex strategy John J Hardy says: “Regarding a possible rate hike there is now incredible focus on incoming data, which is coming already today in the form of the Q3 GDP and tomorrow PCE inflation is perhaps just as important”.
While the Reserve Bank of New Zealand as expected kept rates stable, its governor said that a further rate reduction is likely. According to Hardy, NZDUSD
will definitely look lower if coming US data is decent.
reaction was much more muted as “the market seems very firm in its conviction that the Bank of Japan is not going to say anything tonight”, says Hardy, adding that this makes the potential for a surprise that much greater.
Hardy also points out the “awkward” removal of the statement on recent global economic development from the FOMC statement. This probably shows the FOMC is a bit embarrassed at having put this in originally, says Hardy. More important is the very explicit reference to a possible move at the next meeting in December.
Despite that, odds in the market are only slightly higher. When it comes to main currency pairs, technically we have a very steep move in EURUSD
from 1.15 to 1.09 with resistance layers and focus areas moving lower, USDJPY
is keeping itself in the range and is waiting for direction ahead of the BoJ meeting.
Take a look at these banks
The possible rate hike has also had an impact on equities. Saxo's head of equities Peter Garnry points out that US regional banks are most sensitive and the respective iShares ETF could - as already said earlier – be the right one to buy in order to bet on a rate hike. Already now it is massively up, says Garnry.
A December call in GoPro on the other hand is to be closed after the company disappointed and shares fell heavily (17%) after market. “We will get out of that in the first hour of trading in the US”, says Garnry.
In general, the Q3 earning season is looking better. In Europe Novo Nordisk
came with very strong results while one of its biggest competitors, Sanofi
, disappointed. Two major financials, namely Deutsche Bank
and Danske Bank
, meanwhile, disappointed heavily.
Garnry is generally positive, nevertheless, in particular towards emerging markets and EU peripheral markets.
Ole Hansen, Saxo's head of commodities, points out that it was not only the FOMC that surprised yesterday, but also the inventory report did so. It still showed an increase, but to a lower extent than the market had expected.
“We are probably not out of the woods yet, but are starting to find more clearly the range”, he says.
US refinery demand has started to pick up earlier than expected which helped the market to bounce yesterday. “We probably found a low in the market [and are] now, looking at $46.75/barrel resistance to the upside and probably not much further than the $47.75/b”.
There was a lot of buying in gold ahead of yesterday’s FOMC meeting. But the hawkish statement led to an ugly print of gold, where support is now seen at $1,148/oz with $1,140/oz being the key.
On the bond market the FOMC statement had only little impact, notes Simon Fasdal, head of fixed-income trading at Saxo Bank. German 10-year Bunds opened at 1.58 level, which is a bit lower than yesterday, but very little touched by the FOMC.
The overall market view is still that everything from the Fed will be short-lived. European markets generally are lower in bonds.
The word on the street that the ECB might enter other bond markets continues, says Fasdal, and mentions a push on corporate bonds as a possibility having lately performed quite well and still have potential.
It's no oil painting, but maybe the picture is becoming clearer. Photo: iStock
Clemens Bomsdorf is consulting editor at TradingFloor.com
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