The FOMC Has Fallen Far Short Of A Game-Changer For US Yields
US Equities staged a rally just shy of all-time highs as investors digested yesterday's FOMC meeting alongside GDP and jobs numbers as the market continue to trade to the beat of a less hawkish Fed as the July FOMC has fallen far short of a game-changer for US yields.
Indeed, it appears US yields are likely to remain range-bound throughout August, especially given probabilities of taper announcement in the Jackson Hole Symposium or the September FOMC meeting evaporated after Chair Powell indicated the Fed would provide advance notice before any taper announcement.
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FOREX MARKETS
Of the three main risks for markets this week, namely, the potential for a hawkish Fed, Delta-related growth concerns, and China's equity market fallout, these concerns have faded somewhat over the past 48 hours. The Fed is not hurrying the tapering debate, UK covid cases are declining fast, and China & HK equity markets are rebounding. Look to the following indicators for further signs of improving risk sentiment: a rebound in EM equities, gains in industrial metal prices, and USD weakness.
Fridays are typically not a big battle day for US dollar bulls versus the bears, so I think we could see a back-and-forth session. But if push comes to shove, the July FOMC has proven itself not the game-changer for US yields. Yields are likely to remain range-bound throughout August, especially given probabilities of taper announcement in the Jackson Hole Symposium or the September FOMC meeting are lower after Chair Powell indicated the Fed would provide advance notice before any taper announcement.
The Pound is now the Forex market darling and rallied significantly during the trading session again on Thursday after news the UK will welcome fully vaccinated EU and US tourists without quarantine welcome news for economic recovery, business travelers, and the hospitality sector.
The FOMC did little to upset sentiment, inching towards stimulus withdrawal but importantly for the FX market; Chair Powell, during his presser, pushed back on rate hike expectations. And the USD broadly weakened, which could continue to provide a lift for the Pound.
Sterling continues to reap the benefits from the slowdown in Covid 19 cases. Although the official numbers have fallen sharply in recent days, this has been called into some doubt by the Zoe covid study, which tracks symptomatic cases in the UK and has found stable case numbers. The study, which uses an app to track infections, estimates about 60,480 new symptomatic cases each day and that the figure has been steady over the past six days. So, I think the market will turn a bit more caution on Sterling longs until more clarity on the Covid data.
OIL MARKETS
Oil prices rose on Thursday, with global benchmark Brent topping $75 a barrel, as supplies in the United States further tightened after shrinking to the most negligible levels since January 2020.
Crude oil prices have moved a little higher over the last day as the EIA confirmed the draws in US crude and products inventories reported earlier by the IEA.
However, I would be cautious going into the weekend extremely long oil contracts mainly due to headline risk as questions on the demand outlook could resurface Monday morning, especially if governments across Europe and other parts of the world increase mobility restrictions with the Delta Variant rearising its ugly head worldwide.
GOLD MARKETS
With the rates markets pushing out rate US hike probabilities further along the curve, Gold prices ripped higher during the trading session on Thursday and simply never looked back. And it was a gold medal day for the bullion bulls.
Generally following a straight-line gold move of $25, especially into a significant resistance area ($1830), we would expect some profit-taking to set in, especially ahead of the keenly watched US PCE inflation index released later today.
It was busier overnight, with macro action bringing many back to the table. Still, the gold price upward momentum had ebbed into the New York close, supporting the notion we could see some profit-taking.
Still, the velocity of the move even surprised some of the most experienced gold traders who were not long enough gold and were forced to chase the market higher.