In light of the significant recent shift in outlook on FOMC monetary policy, and the decisive moves seen on major markets, the comments of Fed chair Jerome Powell come with extra weight. So with Powell warning against policy shifting on “short-term political interests” this is seen as a push back against Trump and his calls for rate cuts. Powell also stressed the Fed being in wait and see mode. In conjunction with last week’s FOMC dissenter James Bullard reining in calls for a 50 basis point cut in July, there has been a reaction on markets. What goes up, must come down. So we see the sharp bull run on gold (which had rallied 9% in two weeks) finally beginning to see profit-taking. Already over $30 back in the past 24 hours, an unwind on the bull run is gathering steam. We are also seeing an unwind on Wall Street with equity markets pulling back. The prospect of a less dovish than expected Fed is being priced in today. However, it is interesting to see little real reaction on Treasury yields yet. If this remains the case, then the rebound on the dollar, the pullback on gold and slip back on equities may still be short-lived.
On Wall Street, the prospect that perhaps the Fed may not imminently cut rates has spooked equity bulls, at least temporarily. The S&P 500 reacted by closing -0.9% lower at 2917. US futures are looking a bit more steady this morning, around the flat line, however, yesterday was enough to drag on Asian markets overnight, with the Nikkei -0.6% and Shanghai Composite -0.2%. In Europe, there is also a cautious look to the open, with FTSE futures -0.2% and DAX futures -0.3%. In forex, there is a rebound on USD in the wake of comments from Fed chair Powell and James Bullard. However, there is also a bounce on NZD after the RBNZ opted against a rate cut, holding at 1.5%. However, the dovish minutes (the committee discussing easing and agreed a move was likely to be needed) may mean that a rebound is short-lived. In commodities, gold has fallen back sharply in the past 24 hours, and the prospect of continued profit-taking is now growing. Oil has been supported following a larger than expected API inventory drawdown.
It is another quiet morning on the economic calendar, which only really gets going with the US Durable Goods Orders at 1330BST. On a core basis, an ex-transport monthly growth of +0.1% is expected in May (0.0% in April). The EIA Oil Inventories are at 1530BST and are expected to show a crude oil drawdown of -2.9m barrels (-3.1m barrels last week), with distillates building by +0.5m barrels (-0.6m last week) and gasoline sticks building by +0.2m barrels (-1.7m last week).
Chart of the Day – AUD/JPY
Despite the risk positive aspect of the FOMC meeting last week, there has only been a marginal uptick for Aussie/Yen. A minor recovery at the turn of the week, has continued higher today. However, this is a move into resistance and is likely to be the source of the next opportunity. The run of lower highs and lower lows of the past two months also means that the bears will be on the lookout. The latest breakdown below 74.95 is now an area of overhead supply. Momentum indicators have an ongoing negative configuration although they are currently in unwind mode. The RSI has t