Equity markets are looking a little flat on Wednesday after the Fed took the wind out of its sails and massaged expectations ahead of the July meeting.
Investors have been too keen to believe that the Fed has entered into full easing mode, even though policy makers have been very reluctant to confirm, the economy is still strong and trade war risks are yet to fully materialize. Powell and Bullard both sought to manage expectations on Tuesday, much to the disappointment of the markets and I'm sure, Trump.
How the Fed handles the rest of the year will likely depend on the result of discussions at the G20 between Trump and Xi. A positive outcome may not stop them cutting rates once but it may stop them taking further action for a few months.
Gold may have finally run out of steam
It's been an impressive rally in gold over the last week in particular but it ran into a brick wall on Tuesday as Powell and Bullard delivered a sprinkling of reality to investors. The message was much less dovish than traders had taken away from the meeting last week - not by accident I'm sure - prompting a bounce in the dollar which in turn weighed on gold.
Interestingly, the rebound hasn't been particularly strong and interest rate expectations haven't adjusted too considerable which suggests markets remain engaged in a game of bluff with the Fed. The rebound did occur around past resistance in gold - $1,440 - so perhaps the timing was convenient. The first test of support may come around $1,400.
Oil rally continues after API data
Oil prices were given another lift on Tuesday after API reported a large inventory drawdown, the second week in a row that stocks have fallen. The number far exceeds what was expected and the number we were expecting from EIA today. The number also came at a time when the market was already feeling a little more bullish on oil so gave it a nice kick higher.
Should EIA confirm the number today, the bullish feeling may continue. Ultimately though, while these releases may be providing short-term support for prices, whether the rally will be sustained will depend on other factors, most notably the Trump/Xi meeting, threat of Iranian retaliation and OPEC. These could all prove highly influential over the next week. In the meantime, $59-60 may offer strong resistance.
Crypto rally continues to amaze
It seems like only cryptocurrencies can experience the kind of rally that we're currently seeing with bitcoin up almost 40% in just under a week and more than 200% since early April. Any suggestion that the space has matured over the last 18 months and that this rally would be different has clearly been cast aside, with this showing no signs of easing up.
While I understand the excitement for the community that a company like Facebook (NASDAQ:FB), backed by other big names, has launched its own coin, this just feels a lot like last time and we all know what happened then. Perhaps this time the drop off won't be so bad as we are seeing more mainstream adoption but it may be naive to think that it can't come crashing down again.
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