It would appear investors had nothing to be nervous about ahead of the Fed meeting on Wednesday, as the central bank stepped up and delivered the dovish message they so craved.
Decent gains across US markets on Wednesday are filtering around the globe as the continuing trend of dovish central banks distracts investors from the reality of an economic slowdown, trade war between the world’s two largest economies and Brexit. Now that investors feel that the Fed has their back, it’s over to Trump and Xi to deliver the news they truly desire.
All differences won’t be resolved during their prolonged meeting next week but if tariffs can be avoided and a deal put back on the table in the coming weeks or months, investors will be very relieved which could be supportive for equity markets heading into the summer period. The old saying “sell in May and go away” was looking good a few weeks ago but a strong rebound in June and prospect of progress next week could rubbish that idea for another year.
BoE overshadowed by leadership race
It’s not often that a central bank announcement is overshadowed by other domestic events but today is very much one of those occasions. The Conservative leadership – and therefore Prime Minister – race has understandably stolen the spotlight in the UK this week, with the number of contenders now falling to four and that will halve again today following one final vote by MPs. The next PM will then be selected from the final two by the Tory membership over the next month, at which point attention will quickly shift back to Brexit meaning the BoE may have to get used to playing second fiddle.
The meeting today is likely to be a non-event, with the central bank currently not expected to move interest rates at all over the next year and no press conference to follow. A statement is expected to accompany the decision but we can’t expect much from that. What will be of far more interest to traders today is who will join Johnson in the final two. With Raab gone, there’s little difference between the other three remaining contenders but Hunt may be preferable being a reformed remainer that is strongly opposed to no deal. That said, Johnson will probably win the run-off anyway so it probably doesn’t actually make much of a difference.
Oil bounces on inventory data
We saw a nice bounce in oil prices on Wednesday, as EIA reported a 3.1 million barrel drawdown in inventories, a number that exceeded expectations but also broke a recent trend of builds. This may just be a one off dip, with record US production and global growth concerns weighing on demand but traders jumped on the news following a prolonged period of weakness that saw prices drop around 20% from late April to early June.
The rally has been extended today, aided by strong risk appetite across the markets, which has lifted WTI above the 10 June peak and potentially setting it up for further near-term gains. The next notable resistance for WTI may come around $58-59, a level it has currently run into issues previously.