US MARKET WRAP: DXY hit on weak data; FOMC mins keep Dec hike in play

FED: Minutes keep the December hike narrative intact

The FOMC meeting minutes from the Oct/Nov provided little by way of new information; many participants were of the view that a near-term hike was warranted, though some opposed the decision due to weak inflation – as recent Fedspeak had suggested. On the whole, there was little to help repricing of rate expectations for the rest of 2017, and with Jerome Powell’s confirmation hearing for the position of Fed chair, analysts will be looking to his comments to tweak their expectations for 2018 and beyond. There was little reaction in wake of the release, however, as traders headed towards the exit for the Thanksgiving Holiday, a mild dovish reaction was seen; some cited the inflation concerns by “some” participants as the reason for the moves.

EQUITIES: S&P 500 -0.08% at 2597; Dow Jones -0.27% at 23526; Nasdaq-100 +0.12% at 6386
Top-performers: Telecoms +1.67%, Energy +0.44%, Industrials +0.14%
Bottom-performers: Financials -0.40%, IT -0.26%, Materials -0.23%

US equities traded in a narrow range in light trade on Wednesday, ahead of the Thanksgiving Holiday, and the S&P 500 and the Dow Jones managed to pare-back their early losses, helped along by a dovish response post-FOMC. Telecoms – which underperformed on Tuesday – was the outperformer on Wednesday. Energy stocks were lifted by the gains in crude prices. Lower Treasury yields weighed on financials. Following two-days of gains, there was some profit-taking in the tech sector, exacerbated by the weakness in HP following its earnings report on Tuesday, and news its CEO was being replaced.

TREASURIES: US 10-Year T-Note Futures (Dec) settle 13+ ticks higher at 125-03+

Yields were lower across the Treasury curve ahead of the Thanksgiving Holiday, pushed lower by the weak durable goods data, and also got a small boost after the release of the FOMC meeting minutes, which have kept the December hike narrative intact; there was some buying of Treasuries after the Fed released its minutes, after “some” participants were against endorsing a December hike given the weakness in inflation. The curve bull-steepened, with short-end yields falling by around 4.5bps by settlement, while long end yields fell by around 2bps. Today’s price action helped some of the closely-watched curves to widen – 2s10s +0.8bps, 2s30s +3bps, 5s30s +4.3bps.

FOREX: DXY slides on weak durable goods data

USD: The dollar gave back strength seen in the European session after the latest batch of durable goods data missed expectations. US durable goods orders declined in October, against analyst expectations of a small rise. Core orders were also lower, although the prior month’s data saw a hefty upward revision though did little to assuage the market. The mood switched to risk-off following the release. The University of Michigan consumer sentiment saw small improvements to the main headlines, although inflation expectations for both the 1-year horizon, as well as the 5 to 10-year horizon slipped a touch. And concerns about the future prospects for inflation were noted by “some” in the Fed’s latest meeting minutes, which was cited as a reason for some of the weakness post the minutes’ release.

EUR: The buck’s weakness left the EUR to appreciate, and managed to punch its head above the 1.18 handle in wake of the FOMC meeting minutes, which didn’t provide any new insight. More closer to home, ECB policymakers are aiming to put off any major discussion of its next policy move until well into 2018, sources said, and the central bank will likely to reaffirm its current policy stance at its next meeting on 7 December. Separately, other sources said that the ECB will be studying the impact of its corporate bond purchases.

JPY, CHF, XAU: Low-yielding, safe haven FX was higher against the dollar, with the yen eyeing the 111 handle heading into Asian trade, up over a percent against the greenback; the Swissy’s price action was similar, strengthening by around a percent versus the dollar.

GBP: Sterling’s strength today was probably flattered by the dollar weakness. The Chancellor unveiled his Autumn Budget. Even though growth forecasts were revised lower and borrowing would be higher in the year, the Chancellor has said he will be spending, which some are taking as growth positive. Cable re-took the 1.33 handle after the FOMC’s meeting minutes.  

COMMODITY FX/EMFX: The CAD pierced 1.27, and other commodity FX was also helped along by the dollar, as was EMFX.

COMMODITIES: WTI futures settle USD 1.19 higher at USD 58.02 per barrel; Brent futures settle 75 cents higher at $63.32 per barrel

US EIA Weekly Crude Stocks (17 Nov, w/e) -1.855M vs. Exp. -1.545M (Prev. 1.854M); US crude production rose 0.13% to 9.658mln bpd. Oil slipped after the release as the draw wasn’t as deep as was suggested by API data on Tuesday, and additionally, US production continues to rise. Crude prices recovered after the release. Oil rigs rose by nine in the latest week to 747 in the latest week, and gas rigs fell by one to 176, Baker Hughes reported, pushing the total rig count for the week to 923.

Ahead of next week’s OPEC meeting, sources reported that Saudi Arabia was lobbying cartel to extend its supply cut pact by an additional nine-months, and an extension was likely to be agreed at 30 November meeting. Separately, newswire surveys have found that a nine-month extension is now the consensus view. Qatar’s oil minister said OPEC needs more time to reduce crude oil inventories towards the five-year average, and extending the supply cut deal will help to stabilise the market. Elsewhere, OPEC is also said to have invited another 20 non-OPEC countries to the meeting at the November.

Natural gas inventories drew by less than expected, according to EIA data that was released a day early on account of the Thanksgiving Holiday on Thursday. 

22 Nov 2017 - 21:05- Research Sheet- Source: RANsquawk

Subscribe Now to RANsquawk

Click here for a 1 week free trial

RANsquawk provides audio news and commentary for over 15,000professional traders and brokers worldwide. Services include: