German And French Inflation, ECB and FOMC Indicate No Rate Hikes
The dollar again traded marginally lower against other major currencies. Meanwhile the pound sterling (GBP) only marginally improved, despite reports that the EU leaders offered the UK more time to agree on its relationship with the EU after a Brexit. Should the UK Parliament agree to this motion, the new deadline will be moved from this Friday to October 31.
In emerging markets, the South African rand (ZAR) strengthened against the dollar over the course of the day to the strongest level since February. Some analysts pointed out that the dovish central banks’ policies in both Europe and the US could be favouring the rand. 10 year South African bonds are currently yielding around six percent more per year compared to similar US securities, which however also have a better credit rating.
Oil prices moved to yet another five months high, despite the EIA data indicating an increase in crude oil stockpiles by 7 million barrels. This was however offset by a significant draw of 7.7 million barrels from gasoline inventories over the same timeframe.
Major US indices further extended gains, while their European counterparts closed with mixed results on Wednesday.
While bitcoin stood relatively steady around the $5,200-mark, other cryptocurrencies like Ethereum or Bitcoin Cash moved lower. Cryptocurrency exchange Coinbase announced that it would launch a debit card in cooperation with Visa, allowing its users to spend multiple different cryptocurrencies at businesses accepting Visa.
On Thursday the German and French consumer price index (CPI) will be published, while from the US data on jobless new claims and the EIA natural gas report are expected.
Minutes published from the last Federal Reserve policy meeting in March indicated that most of the policymakers expect that no rate hikes would be seen this year and a 'patient' approach was needed as the global economic development is seen as uncertain. Only few policymakers indicated a modest increase in rates as warranted for this year.
Unsurprisingly the European Central Bank (ECB) left its interest rates unchanged and given the deteriorating economic climate had to backtrack on its plans to tighten its monetary policy. The slower growth expectations were recently also showcased in the deteriorating World Economic Outlook released by the IMF.
The release of CPI numbers from Germany, France and some other European countries is scheduled for Thursday, while from the US producer price index (PPI) data is expected.
While gold prices moved for the third consecutive day higher on Wednesday, given the weakness of the dollar, a retracement was seen around the time the FOMC minutes were released. Some analysts explained that the tone of the minutes indicated that while the central bank would not raise interest rates for this year, no signals for a monetary easing were seen. In general, it is assumed that higher interest rates could in theory adversely affect gold prices.
Platinum prices recovered from the slump on Tuesday and by Thursday morning moved closer towards this week’s high. Palladium prices also moved higher, however with much less volatile movements compared to the previous weeks, when it reached new record levels.
After a brief pause on Tuesday, the oil rally continued, which saw Brent crude oil contracts settle at a new five months high above the $71 per barrel mark. Prices edged higher despite the Energy Information Administration (EIA) reporting crude oil inventories up by more than 7 million barrels per week, which was clearly above market expectations and even the API data the day before. However, the strong decline in gasoline inventories by 7.7 million barrels helped offset this impact.
Analysts often explained this week, that oil prices were affected by political unrest affecting production in Venezuela and Libya as well as continued OPEC supply cuts.
In a recent interview with Bloomberg, the UAE energy minister clarified that OPEC nations misjudged the market impact of Iran sanctions last November, when the United States also issued waivers to multiple nations. As the waivers are due to expire soon without certainty of an extension, OPEC countries would be careful in deliberating the need of adding supplies.
US indices settled close to the high seen earlier this week, making up for the losses from Tuesday. US inflation as seen in the consumer price index (CPI) was up slightly above expectations at 1.9% y/y (expected +1.8%). Minutes from the last FOMC meeting revealed that the central bankers are still seeing greater risks to the economy and will likely refrain from any rate hikes this year.
Boeing (-1.18%) shares settled again lower, edging closer to the March low following the grounding of its new 737 Max series. As airlines around the world grounded this new type of aircraft being scaled back production levels and is likely to face lawsuits from relatives of the deceased in the two crashes within less than half a year.
Shares of the ride-hailing app Lyft (-10.78%) were in a free-fall over reports that competitor Uber might announce an IPO by Thursday, as well as over concerns that the IPO price of $72 per share was an overvaluation of the business.
The earnings season is about to start again soon, with banks like JPMorgan Chase and Wells Fargo, who are releasing their numbers on Friday, as often being the first companies to publish their quarterly results.
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