CMC Markets

The situation in Iraq is fluid with Islamic militants making gains, the Obama administration has responded by sending 275 troops. US markets look to be taking the news of the troop deployment relatively well, unchanged at the open ahead of the FOMC press conference.

Futures suggest the Dow 30 will open unchanged at 16,808 with the S&P 500 expected to open unchanged at 1,942 and the Nasdaq 2 points higher at 3,785.

Iraqi militants have been attempting to take control of strategically important assets within the country, most importantly the country’s largest refinery at Baiji. Crude oil has remained flat since its initial moves after the crisis broke, around $106 in WTI and $113 in Brent Oil. It will likely take Baghdad falling to really threaten the country’s overall production and push prices significantly higher.

Another reason for the stabilization of oil prices yesterday was the strength in the US dollar resulting from the stronger than expected US inflation data. The inflation data has increased the likelihood of an earlier rate hike from the Fed, so the direction of the Dollar in the days ahead will likely be determined by whether the Fed reinforces or dismisses this new message of higher inflation expectations.

The Fed is widely expected to taper another $10bn from its monthly asset purchases to total $35bn per month. The potential changes will come from the Fed’s forecasts, namely in unemployment, inflation and growth. If the Fed lowers its unemployment forecast and raises its inflation forecast then implication is that they are closer to their target and a rate rise should come sooner. It will probably come down to Chair Yellen’s press conference and her comments on the importance of any change in forecast and how that compares to any slack in the labour market.

FedEx Corporation (NYSE:FDX) is expected to report its fourth quarter earnings at $2.36 per share on revenue of $11.66bn before the opening bell. The company is often used as a bellwether for the US economy, if there is a lot of production and consumption of goods, these goods need transportation which will be good for couriers like Fed Ex. Any slip in earnings is likely to reinforce doubts over the US economic recovery and weigh on the broader stock market.

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