LCG MARKET WRAP: FOMC, US inflation, Aramco, Impeachment – By Jasper Lawler, Head of Research

 

The swift positive reversal in sentiment seen yesterday has petered out on Wednesday. Markets are pausing before top tier economic data releases and the Federal Reserve meeting today. Reports of a tariffs delay are a mixed blessing. While it means we avoid an escalation, it probably also means we must wait until Q1 of 2020 for a phase one deal.

Articles of impeachment being brought against a US president for only the fourth time ever felt like a big historic moment, just not for financial markets. Unless it becomes bipartisan across the political aisles- probably brought on a shift in public opinion, the impeachment should die in the Senate.

US inflation data for November will lay the groundwork for the interest rate decision by the Federal Reserve. A consensus reading for CPI to rise to 2% y/y will be smack on the Fed’s target and justify the likely decision to keep rates on hold. It’s almost a year since the Fed’s massive policy U-turn that saw them switch from a planned tightening cycle to cutting interest rates three times and restarting asset purchases. The Fed probably doesn’t want to make U-turns an annual habit. They have set a high bar for any change in rates – either up or down. The November jobs report – good as it was- is just one month’s worth of data and doesn’t reach the said bar. A simple signal from the Fed that it intends to lay low should be enough to support risk sentiment. The biggest risk probably comes from an accidental signal to change policy from the dot plot.

Aramco has become the world’s biggest listed company. That follows a 10% rise in the share price on its first day of trading. A listing in Riyadh with mostly domestic investors doesn’t have the prestige of an international listing in New York or London. But there is no denying the numbers. Saudi Arabia has made its mark in public markets. The listing was over four times subscribed so the first day always looked like it was going to be strong. Whether enthusiasm holds up longer term will in part rest upon the host nation’s ability to stay relevant for the world’s future energy needs. The oil industry needs to adapt to higher supply from the United States and calls for lower fossil fuel use because of climate change. Given the challengers, it is not impossible that this is the high watermark for Aramco.

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FTSE 100: Like other global indices, on Wednesday the FTSE is adding the rally that began thanks to talk of a tariff-delay around lunchtime in Europe yesterday.

DAX: The DAX has held above 13,000 for a third time which supports the idea that the last month has been a shallow pullback before another romp to new record highs for the first time in nearly two years.

S&P 500: Barring any big news on trade it’s expected to be a relatively stable morning on Wall Street before the Fed rate decision.

EURUSD: The euro dropped back from 1.11 yesterday. A surprise in US CPI figures is unlikely to cause any big waves with the Fed likely to signal its on hold whatever the state of US inflation in November.

GBPUSD: Prime Minister Boris Johnson’s warning that the UK faces the risk of another hung parliament coupled with a YouGov poll pointing to a narrower Conservative party victory took some of the shine off the pound.

Crude oil: Reaction to a surprise rise in API inventories didn’t last too long and oil prices are firming up again on Wednesday. Expectations that the December 15 tariffs will be pushed back into 2020 is good news for the global economy and the demand for oil.

Gold: Precious metals are inching higher as risk appetite dampens before the Fed meeting.

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Opening Calls

S&P 500 set to open 2 points higher at 3,134

Dow Jones to open 12 points higher at 27,893

Contact: Jasper Lawler, Head of Research

Twitter: @jasperlawler

Email: jasper.lawler@lcg.com

Tel: 0207 456 7086

Available via Globelynx

Financial Markets and Political Commentary

 

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About the author

Jasper delivers regular commentary, seminars and webinars on market news, trading analysis, strategy and psychology. He is regularly interviewed by BBC News, Bloomberg, CNBC and Sky News, and has featured in The Times, Guardian and Daily Telegraph. Jasper hosts a weekly charting analysis webinar. He is qualified as a Chartered Market Technician (CMT) with the Market Technician Association, and has a degree in Finance and Economics.