Dovish Fed Minutes Give Stocks a Lift

European stock markets are mostly higher, as a relatively dovish Fed minutes underpinned gains in Asia which spilled over into Europe.  Traders shrugged off Chinese and Hong Kong ratings downgrades. However, oil prices dropped from earlier highs and are trading below USD 51 per barrel after touching USD 52 per barrel earlier in the session, following OPEC’s decision to extend their output cut agreement to March 2018. Eurozone markets remained underpinned by dovish comments from ECB heavyweights Wednesday, which showed that Draghi and chief economist Praet still favor a very cautious approach to any changes in the forward guidance in June. However, with public holidays in many Eurozone countries including Germany and France, trading is somewhat subdued. An unexpected downward revision to U.K. Q2 GDP numbers meanwhile underpinned FTSE 100 under performance, despite the fact that Sterling dipped against EUR and USD.

Fed Funds Still Point to Rate Hike in June

Fed funds futures rallied on the dovish tilt to the FOMC minutes that indicated Members thought it prudent to see additional data to ensure the recent slowing was temporary, before tightening further. The concomitant decline in implied rates puts the risk of a June hike back around 75%, in the lower end of the recent range, though July still points to an 80% chance. With next month’s decision now more dependent on data, the June 2 employment report will be crucial. Note too that the next retail sales and CPI data are released the morning of June 14, the final day of the FOMC’s 2-day meeting.

U.S. Senate Majority Leader McConnell is doubtful on the healthcare bill inherited from the House, which he thinks is unlikely to achieve the 50 votes required to pass. Instead, Senate Republicans are working on a separate approach to healthcare reform that may or may not seek White House input. On the other hand, he sees prospects as “pretty good” for passage of comprehensive tax reform legislation.

South Korea’s central bank kept interest rates unchanged, taking an unusually bullish view of economic growth prospects. The Bank of Korea’s monetary policy committee held its base rate steady at 1.25% which was widely expected.

The UK experienced a statistically significant increase in emigration in 2016, according to the latest quarterly report on migration statistics by the ONS states office. The net increase in emigration was 40k in 2016 relative to 2015 levels, which was coupled with a 43k decrease in immigration. Net long-term migration was estimated at 248k in 2016, down 84k from 2015. It is of course tempting to conclude that the Brexit vote of late June last year had an impact.