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The markets Rollercoaster inertia is about to kick into high Gear

By:
Stephen Innes
Published: Jul 30, 2019, 07:35 UTC

We are moving into the business part of the week so make sure your buy and sell buttons are in good working order as the market’s rollercoaster inertia is about to kick into high gear. The Bank of Japan policy announcement will get things started, but a definitive decision looks unlikely, but their comments will be tinged with overt dovishness.

The markets rollercoaster inertia is about to kick into high gear

The focal point for markets is the FOMC meeting on Wednesday. A cut is expected, but will it be 25bp or 50bp. The market seems centred on 25bp. But with economic momentum shifting from relative stability to contraction mode a 50 bp cut is still not out of the question despite two good financial data prints list week, namely US durable good and US GDP have the markets settled on 25 bp cuts.

The weaker Dallas survey continues the string of relatively soft manufacturing data since the initial upside surprises  with last week’s PMI, KC Fed and Richmond Fed all skewing to the softer side which is  adding more momentum to the 50 bp July rate cut camp but at minimum three rate cuts in 2019

Equities markets

Markets are doing little more than marketing time ahead of the major risk event of the week specifically the trade talks and the FOMC

Oil prices up over 1 %

Although the Fed rate cut is all but priced in and while Fed easing has buttressed oil prices by effectively curbing downside volatility. A   Fed rate cut will offer substantial wiggle room for every central bank to lower interest rates and its the thought of this concerted policy effort that is providing the springboard for oil prices today. Also, the markets are likely positioning in anticipation of significant near-term policy response from the Pboc, which will be like adding jet fuel to risk markets.

Also, the resumption of trade talks is being viewed in a positive light and while the markets remain in “hope for the best but prepare for the worst mode” an agreement on practically anything will be considered a positive sign. But make no mistake, the outcome of US-China talks will be crucial for near-term sentiment for oil.

With a low bar for a positive outcome from this week’s trade discussion and concerted effort by global central banks to loosen monetary conditions, Oil bulls have been quick out of the gates this morning in Asia

Gold trading firm pre FOMC

Gold is trading firmer which in itself is a bulls signal given that speculative longs continue to build last week even although markets are trading well above the key $ 1400.But the markets are picking up support dreary Fed surveys and when combined with the sickly US PMI and ISM data, which are simultaneously skewing to contraction mode promoting at minimum a 3 Fed rate cuts if not an aggressive 50 bp cut this week.

Markets are trading near the top of our weekly range projections so unless their significant USD sell-off there might no be much headroom left in this move ahead of the FOMC as a trader may start to pare risk

This article was written by Stephen Innes, Managing Partner at VM markets LLC

About the Author

Stephen Innescontributor

With more than 25 years of experience, Stephen Innes has  a deep-seated knowledge of G10 and Asian currency markets as well as precious metal and oil markets.

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