Another mixed start to trading in Europe on Thursday, while US futures are pushing little higher, partially offsetting Wall Street’s decline on Wednesday.
Clearly investors did not take too kindly to the Fed refusing to bow to public – and more importantly political – pressure to at least signal a willingness to be more accommodative. The central bank has already dramatically softened its monetary policy position, having signaled no rate hikes this year and only one next and policy makers clearly believe this is sufficient to deal with the challenges the economy is facing. Clearly the data supports this view.
Should oil bulls be worried?
Oil prices are coming under pressure again today, with this week’s inventory data knocking the stuffing out of oil bulls, especially when combined with record US production figures and a stronger dollar. WTI had looked toppy for a few weeks prior to the recent difficulties and last Friday’s outsized reaction to Trump’s OPEC phone call claim was a clear signal that traders were looking for a reason to abandon ship.
We’re still seeing some resilience in oil prices but that may quickly fade if WTI breaks below the $61-62 region, bringing $58-59 into focus. Tomorrow’s oil rig data will be very interesting in light of the US output hitting a new record of 12.3 million barrels per day at the end of April. Until then, bulls may have a real fight on their hands with WTI threatening to break a four month uptrend which would be another blow.
Gold bulls looking nervous
Gold is heading south again on Thursday, with yesterday evening’s pop in the dollar primarily responsible for the moves. This was always likely to be a big week for the greenback - and therefore gold - and it’s not over yet. The refusal by the Fed to bow to pressure, particularly from the White House, and at least signal a willingness to be more accommodative sent the dollar higher on Wednesday which was a major drag on gold sending it back towards last week’s lows.
Gold is under pressure again despite the dollar actually paring gains which could be some insight into traders mentality when it comes to gold at the moment. It was threatening to potentially make a comeback but price action over the last 24 hours hasn’t give bulls much cause for optimism which looks to have taken its toll. Gold recently found support around $1,266 but around $1,260 is key area for me. A break of this could make things very interesting.
BoE to offer hawkish surprise?
The Bank of England is up next and the widely held belief appears to be that it’s going to fall in line with its peers and do nothing. While I don’t expect a rate hike today, I do question the logic behind just waiting for Brexit to be resolved. It made sense from August last year but what if the can is kicked down the road again, are we set for an indefinite pause?
Given the data, I wouldn’t be surprised if the BoE retains a hawkish stance and maybe even suggests there could be a hike later in the year once everything has settled down. Brexit has already delayed the tightening cycle considerably, I don’t think it will want this to continue.
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