Yesterday was the first of the three very busy days of this week. The main event of the day was undoubtedly the FOMC rating decision, although positivity had already fueled from the strong ADP and US Q2 GDP readings, while BEA has revised the 2012 US growth higher at 2.8%. Presenting the main points of the somewhat dovish Fed announcement are that Fed has kept rates unchanged and maintained the $85bln/month QE as expected, repeating that it is ‘prepared to increase or reduce’ purchases. Moreover, inflation persistently below 2% goal could pose risk to economy but anticipates being back at 2% in the medium term, and also economic activity has expanded at modest pace (instead of moderate at June’s statement) in the first half of 2013 and labor market conditions have shown further improvement in recent months.
The stock indices moved north during the US session as the positive ADP and GDP data took their toll, to follow in the evening the FOMC statement which has interpreted from investors as marginally dovish after no hint of tapering, inflation lower than desired and growth slowing slightly as it is the first time in at least three years that the Fed has used the term “modest” to describe the economy in its policy statement. However, the last hour of trading, all the stock indices rejected their highs and moved aggressively lower to pare their gains and close slightly in the red zone, possibly because the speculators were selling their long positions of the day ahead of tomorrow’s high risk events.
This morning, the official Chinese manufacturing PMI showed unexpected expansion and the positivity of the Asian markets has passed at the opening to the European and US stock indices, although we expect things to calm down ahead of Draghi’s press conference.
After the Fed announcement bond futures headed to the north till the closing. Today, after a small gap lower due to the positive developments in Asia, bond futures are moving higher again closing this gap. Worth mentioned that Spain is going to sell 2-3bln 3.3% 2016 and 3.75% 2018 Bonds at 0930GMT.
After the weakness in the USD due to the slightly dovish FOMC announcement, the metal futures are moving to the green. Namely gold (Sept.) is up 0.62% at $1320.85, Silver (Sept.) is trading at 19.620 (-0.02%), Copper (Sept) at 3.130 (0.33%), Platinum (Oct) at 1441.35 (0.17%) and Palladium (Sep) at 731.40 (0.54%).
Regarding the soft commodities, wheat and soybean products are moving higher today, although the coffee is down 1.44%. Sugar is trading practically flat, as well as corn which is marginally up 0.03%.
At the energy complex, Crude and Brent oil are moving higher, despite the DoE reports which have shown a build of inventories. These markets appear to be supported by news that Libyan oil production has been reduced to 300,000 bpd from the recent level of 800,000 bpd following the shutdown of several key ports in the country. WTI Crude Oil currently trading up 0.60% at $105.66, the Brent Oil is up 0.23% at 108.02, natural Gas is down 0.46% at 3.427, while Heating Oil is up 0.22% at 3.0601.
The rest of the day is going to be very interesting, as we have various Manufacturing PMIs from Europe, BoE and ECB rate announcements and the key event for today, Draghi’s press conference, after the ECB rate announcement at 1330GMT. The US session includes Job data at 1330GMT and the ISM Manufacturing and Construction Spending at 1500GMT.
- FED maintains $85bln of bond buying and repeats “prepared to increase or reduce” purchases
- FED says inflation persistently below 2% goal could pose risk to economy
- Obama defends Summers to Democrats
- IMF warns of €11bn Greek bailout shortfall
Major Data Releases
- Chinese Manufacturing PMI (Jul) M/M 50.3 vs. Exp. 49.8 (prev. 50.1)
- Chinese HSBC Manufacturing PMI (Jul) M/M 47.7 vs Exp. 47.7 (prev. 48.2)
- 0815GMT: Spanish Manufacturing PMI (Jul) M/M exp. 50.6 (prev. 50.0)
- 0843GMT: Italian Manufacturing PMI (Jul) M/M exp. 49.7 (prev. 49.1)
- 0848GMT: French Manufacturing PMI (Jul F) M/M exp. 49.8 (prev. 49.8)
- 0853GMT: German Manufacturing PMI (Jul F) M/M exp. 50.3 (prev. 50.3)
- 0858GMT: Eurozone Manufacturing PMI (Jul F) M/M exp. 50.1 (prev. 50.1)
- 0928GMT: UK Manufacturing PMI (Jul) M/M exp. 52.8 (prev. 52.5)
- 1200GMT: BoE Rate and Asset Purchase Target Decisions
- 1245GMT: ECB Rate Decision