News & Analysis

U.S stocks fall on rate rise – FED, likely two more this year; Oil rebounds after inventories; ECB in focus tonight

Jun 14, 2018 | Daily Market Outlook

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11:30 AUD Employment Change – Unemployment Rate
18:30 GBP Retail Sales
21:45 EUR Main Refinancing Rate EXP hold 0.00%
22:30 EUR ECB Press Conference
22:30 USD Core Retail Sales – Retail Sales

U.S markets tracked lower overnight as the FED met expectations raising interest rates to 2%. What hurt investor sentiment was the confirmation from the FED that there will likely be two further interest rate hikes this year.

Futures held gains late into London session after a soft start to the European session. The Dow Jones ended the session 119.53 pts lower, Boeing and Caterpillar off-set gains in Walt Disney. The Nasdaq hit new intraday highs lead by media stocks, following a federal judge’s decision to permit AT&T’s bid for Time Warner. The tech-heavy index later dropped 0.11% to finish at 7,695.70 following the Fed’s decision. The S&P500 ended the session 11.22 pts lower.

According to the Fed’s so-called dot plot, which tracks participant expectations for interest rates, members now expect four hikes this year, up from the three previously expected. The notion of a more aggressive Fed raised concerns about higher borrowing costs dragging on the economy and ultimately weighed on the market. Most of the mover lower came in the final 30 minutes of trading.

“Information received since the Federal Open Market Committee met in May indicates that the labor market has continued to strengthen and that economic activity has been rising at a solid rate,” the Fed statement read. “Job gains have been strong, on average, in recent months, and the unemployment rate has declined.” “I think the market is quite rightly globing on to the view that this is a more hawkish tone,” said Eric Lascelles, chief economist at RBC Global Asset Management. “On the economic side, notwithstanding a middling start to the year, second-quarter economic growth is tracking for 4%. While that’s probably not sustainable … all of the economic checkpoints are reading quite strong.”

European markets ended mixed the FTSE lost 0.10 the DAX added 48.28 pts after decent selling started Wednesday’s session. ADP rose 5%, Just Eat dropped close to 5% after the rival company Deliveroo said it is to let restaurants use their own riders. Traders main focus was directed to the FED and its rate outlook for the remained of 2018. Tonight European trader focus shifts to the ECB for its rate decision and press conference. The ECB is expected to keep rates on hold, the real interest is around the future of their QE program.

Oil rallied overnight USOUSD added 53 cents closing at 66.46. Gains were driven by U.S. commercial crude inventories falling by 4.1 million barrels in the week to June 8, the Energy Information Administration reported. Gains were capped by rising supplies in the United States and expectations that producer group OPEC could relax voluntary output cuts. OPEC and other producers will meet on June 22-23 in Vienna to discuss future production policy.

Gold rallied off the back of the FED as the USD fell away to some markets. Price added just over $4 but failed again to close above $1300. The USD had a mixed response to the FED. The Dollar lost ground to the CAD and JPY and EUR. The EURUSD dropped hard on the FED but recovered to settle 47 pips higher. Tonight the ECB meets tonight, EUR traders will be keeping a close on the statement. Any hints at a change in the QE program could have a high impact on the EUR.

The GBP reversed gains post CPI data as it meets expectations. Buyers fought back into the NY session, the Cable settled flat. Tonight retail sales data will be released at 9:30 am UK time. The Yen had a mixed night, pulling back to some of the majors but finishing lower to the EUR. Friday, key news will be coming out of the Bank of Japan on Friday.

Good trading from Eightcap.

Sources; CNBC All times are AEST

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