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From the Floor: Yellen bows out – #SaxoStrats

  • Nothing in Trump's speech for the dollar; no drama on trade
  • Focus now turns to Yellen's final FOMC today
  • Expectations for Fed rate hikes have surged
  • Big day for European and US corporate earnings
  • Commodities hit by profit-taking
  • EIA weekly stocks statistics keenly awaited

By Clare MacCarthy

Another big day in financial markets awaits with Jánet Yellen due to chair her final Fed monetary policy meeting and we've a slew of European corporate earnings on the calendar and data points including Canadian GDP, Eurozone inflation, US ADP employment statistics and the EIA's weekly petroleum status report.

First, though, to president Donald Trump's lengthy address to Congress last night, which despite all the fanfare that preceded it, turned out to be of little import for financial markets. "There was nothing in the Trump speech for the dollar," says John J Hardy, Saxo's head of FX strategy, who noted that "he made a vague attempt to reach across the aisle" and make an attempt at bipartisan conciliation, sensing that the Democrats are planning to capitalise on anti-Trump sentiment in this autumn's interim elections.

Far more pressing, then, is today's Federal Reserve Open Market Committee meeting especially seeing that the dollar remains weak while expectations of a Fed rate hike are marching higher.  "It's really startling to look back to where we were as recently as September," says Hardy of the massive upgrading of market expectations for a rate hike, going from close to zero to a majority in favour of three increases this year and a substantial minority anticipating as many as four.

FOMC expectations – increasing belief that the Fed will hike 4 times in 2018 
 Source: Bloomberg

Meanwhile, the corporate earnings season continues to roll on with a slew of big European companies reporting today, including H&M, Electrolux and Volvo, and tech giants Facebook, eBay and PayPal in the US. 

Cashing in

Elsewhere, commodities have had a reversal of fortune but this is hardly unexpected in light of the huge sector-wide rally seen last week. "The story in commodities is profit-taking, especially if you look at oil," says Ole Hansen. WTI Crude oil peaked last week at $66.66 after correcting 50% of 2014-16 selloff. And today's pitch lower is being fuelled by general market weakness, the potential first build in US stocks since November and rising US crude oil production, Hansen says.

Today's EIA weekly status report is likely to show the beginning of the seasonal build in crude stocks, an annual occurrence which tends to last until April. US crude producers just need to add another 122k b/d before breaking above 10m b/d.

 The Fed's Janet Yellen chairs her final monetary policy meeting later today. Pic: Shutterstock


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