Wall street traded in the red after starting off in the green given the better than expected ADP numbers (205k vs 195K) but could not hold gains as a combination of dovish FED comments, disappointing ISM non-Manufacturing figures (53.5 vs 55.1) and dampened sentiment in the US saw the USD and US equities being sold off rapidly. There was no stopping the sell of in USD but equities found a footing and ended the day in the green after a surprise rebound in crude prices which pushed energy companies up. The DJIA closed +1.13%, the S&P 500 and NASDAQ-100 both finished up 0.5%. Elsewhere, Goldman Sachs were dovish and hawkish at the same time, pushing back the FED rate-hike to June from their original March forecast and forecasting at least 3 hikes in 2016. Today’s data out of the USA are as follows:
- Unemployment Claims expected at 279k
- Prelim NonFarm Productivity q/q expected at -1.5%
- Prelim Unit Labour costs q/q expected at 3.9%
- Factory Orders m/m expected at -2.5%
Uncertainty regarding the UK`s future in the EU did little to dampen the GBP after better than expected Composite (56.1 vs 55) and Service (55.6 vs 55.4) PMI`s kept the pound bid. Today will however be the day of reckoning for the GBP and British economy with the BOE taking centre stage. The BOE expected to be keep the Official Bank Rate unchanged at 0.5% and the Asset Purchase facility unchanged at 375B. All eyes will instead be on the Quarterly Inflation Report and Monetary Policy meeting where investors will be looking for a change in tone by the BOE towards a more bullish sentiment and the votes to keep rates unchanged will also be eyed, the last vote was 8-1 against a rate hike, a decrease here will see GBP bulls go wild, while an unchanged vote will dampen recent sentiment and analysts will turn to comments made about inflation and the BOE`s inflation forecast, which if revised up will have GBP strengthening and UK equities falling as the expected lift-off of rate will be bought forward.
Tonight sees Retail Sales m/m expected at 0.5% being released from Australia, better than expected number will see the AUD go bid as the current strength of the AUD is extended. However the RBA Monetary Policy Statement might dampen sentiment if the RBA continues to downplay signs of recovery and reiterate that the AUD is overvalued.
Crude found support and climbed 8% ,after the US DOE released the Crude Oil Inventories which came in at 7792k vs an expected 4000K and more importantly showed that US production has been tailored by a furthered fall of 0.076%. Elsewhere, the rumour mill continues to give markets hope, with Ecaudor`s president announcing that he sees an extraordinary OPEC meeting on the cards this month. Markets seem happy to buy the rumours for now, will it be a classic sell the fact scenario?