Market Analysis – FOMC minutes realise

Market Analysis – FOMC minutes realise, by Junaid Wilson

Yesterday, was dominated by the USD bulls pushing the USD vs EUR to 7 years lows. Gains for stocks were erased, due to a bomb threat, of a football match in Europe where Angela Merkel was to attend. We had a fair amount of economic data realises throughout the day with better then consensus CPI reports from both the UK and UK. The manufacturing component of the US industrial production report, boosted by wide strength, posted a strong gain and offers a lift for the struggling sector.

 

Consumer prices moved in line with expectations in October. A 0.1% monthly rise in the CPI reversed September’s decline but left the YoY inflation rate unchanged at -0.1%. This was the third month in a row that inflation has been either zero or below.

The main change in the annual rate came from clothing and footwear where prices rose 2.0% MoM compared with a 0.6 percent increase during the same period a year ago. The other boosts were from recreation and culture where a 0.8 percent monthly gain this year was double the rate posted in 2014.

GBP vs USD had a significant rally on the back of this report as risks of deflation in the United Kingdom have already been priced into the market. But due to the board strength dollar the GBP gave back gains throughout the trading day.

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The day’s US economic news is solid and points to a December rate hike. Turning to inflation, consumer prices remain subdued but core inflation, driven by higher service costs, is getting higher.

US Consumer prices are showing some lift but not pressure The CPI rose 0.2 percent in October with the core also up 0.2 percent, both hitting expectations. YoY, CPI is up only 0.2% which is up from zero in September while the core is unchanged at plus 1.9 percent which is right at the Fed’s 2 percent goal.

Energy prices rose 0.3 percent in the month following steep plunges in the prior two months. YoY, energy is down 17 percent with oil at the pump down 28 percent. Food prices were weak, up only 0.1% in October with the year-on-year rate at only plus 1.6 percent.

Industrial production fell 0.2% in October but the weakness was in utilities and mining. Boosted by construction supplies, manufacturing, which is the core component in this report, rose a very solid and higher than consensus 0.4 percent to end two months of decline.

 

Today I will expect a quiet trading day as we have the FOMC minutes realise late in the US trading session. Investors will scan the minutes for any clue for when the FED may hike rates that was left out in the October statement.

If the minutes is bullish I will expect to see the USD rally vs all majors and commodity currencies, commodities to fall on the back of a stronger dollar and stock indexes to fall on an anticipated rate hike.

 

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