News & Analysis

Dow trades in volatile session yields climb – Fed minutes hint at further rate hikes; Oil drops 3% Stockpile increase; USD rebounds after minutes

Oct 18, 2018 | Market Updates

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11:30 AUD Employment ChangeUnemployment Rate
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19:30 GBP Retail Sales
Day 2 EUR EU Economic Summit

Wild night for U.S equities as rising yields earnings and Fed minutes all had to be digested by traders. The Dow Jones finished the session 91.74 pts lower. Losses in IBM offset gains in Goldman Sachs. The Dow dropped 319 at its session low. The S&P500 and Nasdaq both fell by 1% at their session lows. Yields remained in focus the 10-year Treasury note yield traded around 3.19% after the minutes were released. According to the minutes from the Fed’s September meeting, the central bank remains convinced it needs to tighten monetary policy to keep the economy steady.

“We have a market that’s gyrating, trying to find a bottom,” said Tom Essaye, founder of The Sevens Report. “This will continue until earnings reaffirm the outlook for next year.” “Bottoms are a process, not events,” Essaye added. “It usually takes several days and sometimes several weeks.”

In Europe, indexes were led lower by Auto stocks, the sector lost 1.88%, Peugeot down by 4.9% and Renault off by 3.57%. This was after news that European car sales dropped 23.4% in September. Volkswagen, Fiat and Renault led the slump. Euro Zone inflation was stable at 2.2%. Brexit – The post-Brexit status of the Irish border remains a sticking point for negotiators, with both sides unable to agree on how to avoid a so-called hard border when Britain leaves the EU on 29 March next year. – CNBC The DAX closed 61.52 pts lower while the FTSE just edged into the red losing 4.8 points.

Oil fell by 3% in last night’s trade as US stockpiles showed a shock increase, U.S. crude stocks rose 6.5 million barrels last week, the fourth straight weekly build, as exports were down to 1.8 million barrels per day, the U.S. Energy Information Administration said. Inventories rose sharply even as U.S. crude production slipped 300,000 bpd to 10.9 million bpd last week, which analysts attributed to the effects of offshore facilities closing temporarily for Hurricane Michael. -CNBC – EIA. USOUSD closed 211 cents lower at 69.67.

The USD rallied after the minutes as the Fed can be seen as hinting more rate rises to come. Some analysts remain wary buying into the current USD strength. “Risk caution is warranted … the replacement of Fed liquidity has come at the expense of tightening liquidity conditions outside the U.S.,” Morgan Stanley strategists said. “The dollar is trapped in a sideways range and we need more confirmation on the data front to push it higher from these levels,” said Bernd Berg, a global macro and foreign exchange strategist at Woodman Asset Management in Switzerland.

Risk tried to hold out to the USD, the AUD made new weekly highs before sellers really set in. The AUD EUR and GBP all closed lower to the USD. EUR lost 73 pips despite stable inflation data. The GBP lost 66 pips to the USD weaker UK CPI also fueled sellers. Risk all traded lower to the Yen before paring losses into to the NY session. The USDJPY closed higher for a 2nd session adding 36 pips. The USDCAD added 82 pips as a rising dollar and falling oil prices fueled buyers.

This morning local shares are holding up relatively well down around 12 points. Traders will be looking to this morning’s Australian Employment change and Unemployment rate. Any big misses normally have a influence on the AUD.

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Sources; CNBC – All times are AEDT

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