The two big drivers of market moves of recent months are in focus toady. The US/China trade talks continue in Beijing and there is the latest FOMC meeting that should give us further clues for the path of US monetary policy. Trade talks are into their tenth round and confidence is fairly high that there will be some kind of conclusion in the coming weeks. President Trump’s Chief of Staff Nick Mulvaney has suggested that there would be a resolution in the next two weeks. This leaves the prospect of a final signing ceremony in the early summer. Issues over cyber security and compliance with the agreement are as yet unresolved. Although there is little new in this, there is a mild risk positive theme to sentiment through markets today. The Fed meeting tonight will also be interesting traders. US data continues to hold up well, although inflation falling has been a quandary seeing as wage growth and oil prices are growing. With consumer confidence improving sharply again, how will the Fed respond given Q1 growth seems to have been surprisingly positive? After the Fed took a cautious line in March, the market now sees a 65% probability of a rate cut in December. A shift to a more sanguine Fed could begin to guide that market away from any cuts, thus supporting yields and the dollar.
Wall Street closed again higher last night with the S&P 500 +0.1% at 2946. US futures (+0.3%) are guiding a more positive sentiment today. With many Asian markets closed for public holiday, also in Europe, FTSE futures are +0.4% early today. In forex, there is limited direction ahead of the FOMC, although there is a slight underperformance of both JPY on a mild improvement in risk. Furthermore, NZD is slipping after disappointing employment data overnight. In commodities, the better risk appetite has hit gold this morning, whilst oil is back under pressure with an early 1% decline.
It is May Day today (or Labour Day depending upon what part of the world you are from) with a whole swathe of Asian and European countries on public holiday. However, this is still a very important day of data on the economic calendar, with the FOMC in focus. The UK Manufacturing PMI is at 0930BST and is expected to slip back to 53.0. That comes after last month’s big jump to 55.1 on mass stockpiling ahead of a supposed Brexit. The ADP Employment Change is at 1315BST and is expected to improve to 181,000 up from 129,000 in March. The ISM Manufacturing is at 1500BST and is expected to slip slightly to 55.0 (from 55.3 in March). The EIA Oil inventories are at 1530BST and are expected to show crude oil stocks building by +1.3m barrels (+5.5m barrels last week). The FOMC monetary policy decision is at 1900BST which is expected to show no change on the Fed Fund interest rate at a range of 2.25% to 2.50%. With this being a meeting without changes to the economic projections or dot plots, the press conference for Fed Chair Powell at 1930BST will be key.
Chart of the Day – GBP/AUD
Brexit related newsflow drove a sterling rally across forex major crosses yesterday. With weak China PMIs hitting the Aussie, has driven a significant upside breakout on Sterling/Aussie. It will be interesting to see