Caterpillar Earnings, FOMC Meeting on Wednesday
The US dollar strongly declined against most other major currencies on Friday ahead of the Federal Open Market Committee (FOMC) meeting, which is set to take place later this week. This also pushed the pound sterling (GBP) to the highest level since October. Meanwhile the Chinese yuan (CNH) gained strength, with the USD/CNH pair falling to the lowest point in more than six months.
Commodity markets were also on the move, with gold surpassing the $1,300 threshold. After moderately higher oil prices on Friday, oil prices pushed to the downside in early trading on Monday, which was by some analysts attributed to some extent to the continued concerns about China’s industrial slowdown and the reported uptick in terms of oil production in the US with the US Baker Hughes Oil Rig Count up by 10 oil rigs compared to the previous week.
Most stock indices around the world opened lower on Monday morning, while the VIX – Volatility Index, which is sometimes also called a “fear indicator” moved higher.
For Monday speeches by the President of the European Central Bank (ECB) Mario Draghi and the Governor of the Bank of England (BoE) Mark Carney are expected. Then on Wednesday the (FOMC) will conclude its two-day meeting, which the much anticipated press conference on the central bank’s stance on its monetary policy.
The dollar noticeably declined over the course of the trading session on Friday, allowing the EUR/USD to recover from below 1.13 to above the 1.14 mark, to a one week high. This comes despite mixed data from Europe, with the German IFO Survey on Business Expectations falling more than expected to 94.2, which is the lowest level since 2012.
A factor attributed to the stronger euro was the decision by major credit rating agencies to confirm Germany’s top rating with a stable outlook.
On Monday the European Central Bank (ECB) will publish its statistics regarding M3 Monetary Supply and Public Sector Lending. In the US the Chicago Fed national Activity Index will be published. Investors will also focus on the two-day meeting of the Federal Open Market Committee (FOMC), which will be concluded with a press conference on Wednesday. Only recently the central bank Committee and their chairman Jerome Powell changed their stance on the near term monetary policy, reducing the expectation on rate hikes.
For the first time in more than half a year gold prices rose above the $1,300 threshold ahead of the Federal Reserve meeting later this week. Other factors possible driving global markets are the continued government shutdown in the US and the approaching deadline for the US and China to agree on trade. Should no progress be made by March 1, US President Trump threatens to move forward with the introduction of additional tariffs on Chinese exports to the US, an action which could lead to an escalation of the already tense situation.
Other precious metals were also on the move, with palladium also moving higher, again surpassing the value of gold per ounce, while platinum and silver also moved higher. Silver gained more than two percent in the trading session on Friday.
On Friday oil closed higher, however the gains were not enough to offset the declines at the start of the week and thus ended the series of higher prices on a weekly basis. The US Baker Hughes Oil Rig Count, which indicates the number of operating oil rigs, rose to 862 from 852 in the previous week. This marks the first increase in reported oil rigs on a weekly basis after three weeks of declining numbers.
Analysts pointed to the fears about a global economic slowdown, with China’s growth now reported at the lowest level in almost three decades as a possible factor also affecting energy commodity markets. The falling earnings of Chinese industrial companies in December added concerns about the situation of the world’s second largest economy.
On Tuesday the American Petroleum Institute (API) publishes its weekly report on crude oil stockpiles in the United States. The Energy Information Administration (EIA) is the set to release its weekly inventory numbers on crude oil, gasoline and distillates on Wednesday.
US equity indices futures closed lower on Friday, due to the downturn in the extended trading session. Multiple factors could be affecting the overall sentiment, such as the subpoena of the former personal lawyer Michael Cohen by the US Senate and the continued government shutdown, which left government workers for the second time in a row without paychecks.
Especially stocks from the chip sector (US Semiconductors ETF +1.79%) performed exceptionally well for the second day in row, with strong gains in stocks like AMD (+5.28%), Texas Instruments (+2.2%) and Micron (+6.51%). However Intel (-5.72%) stocks took a dive after missing in its earnings the expectations on revenue for the last quarter and giving a weaker guidance for the upcoming quarter, with analysts worried about increasing competition to the company’s products.
The biopharmaceutical company AbbVie (-6.59%) also traded lower, after earnings showed that that the medicine Humira, which is a major driver for the company’s revenue was selling significantly worse than before outside the United States.
The earnings season continues with some of the biggest US listed companies releasing their earnings this week, such as Caterpillar on Monday, Apple, AMD, 3M and eBay on Tuesday and Boeing, AT&T and Alibaba Group on Wednesday.
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