FTSE -22 points at 7280
DAX +2 points at 12000
CAC +3 points at 4898
Euro Stoxx flat at 3339
The Federal Reserve (Fed) meeting minutes triggered a ‘sell-the-fact’ wave in the US dollar, as Treasury yields declined. The minutes showed that the FOMC members were keen on raising the US interest rates ‘fairly soon’, without however voicing concerns about accelerating inflation which would encourage them to accelerate along the path towards a steeper policy normalisation. As a result, the March rate hike expectations retreated to 34%, suggesting that the Fed will certainly wait for June to raise rates (77.5% probability). We remind that May meeting is still live with 61.8% chances of action, yet FOMC Chair Janet Yellen appeared inclined toward June at her semi-annual testimony a week ago.
The S&P 500 bounced lower from record highs for the first time in ten straight sessions. Oil and energy stocks failed to build on gains as the underlying oil market rejected to buy the positive breakout after Secretary General of OPEC Mohammed Barkindo said that the compliance with production cuts and reducing the supply glut has been strong. Although the joint OPEC action has been keeping the prices on the upper range of the market, Barkindo’s recent commentaries failed to gather a sufficient momentum to trigger a positive price breakout. Instead, traders preferred selling the top of the range. Given the deeply overbought conditions, we could expect a further downside correction in the price of Brent crude toward $55.30/55.00 per barrel.
US crude (+0.82%) advanced to $54 in Asia, on hints of the first inventory drop of 2017 in the US. Solid offers trail above $55, as investors are not fully convinced on the possibility of a sustained recovery above this level.
The USD/JPY weakened to 113.08 in Tokyo, as the US dollar depreciated across the board. Nikkei (-0.27%) and Topix (-0.24%) softened on stronger yen. The pair is testing the 100-day moving average (112.90), which has acted as a solid support along the Trump-rally. Below the 100-DMA stands the critical 112.50 support (major 38.2% retracement on Trump rally), if broken, should suggest a mid-term bearish reversal for a deeper sell-off to 110.60 (50% level) before the 100.00 mark.
The pullback in the US dollar couldn’t benefit fully to the AUD/USD, as the 2.1% contraction in Australia’s capital expenditure in Q4 (vs. -0.5%q/q expected & -3.3% revised from -4.0% in 3Q) triggered a sell-off in the Aussie. AUD/USD sold off to 0.7665 in Sydney, followed by a quick recovery to 0.7700 mark. The waning USD appetite could encourage carry traders to boost their positions for an advance to 0.7775/0.7800. The trend remains positive above 0.7513 (major 38.2% retracement on December 22 to February 15 rise).
The ASX 200 lost 0.35%, as miners (-2.64%) lead losses on softer commodity prices.
Softer copper (-0.93%) and iron ore (-1.87%) futures kept Asian traders’ appetite limited for the FTSE futures (+0.06%) despite the weak pound. The FTSE 100 is expected to slip below the 7300p level at the open.
On the corporate side, Barclays’ (NYSE:BCS) 4Q adjusted pre-tax profit missed the estimates, the bank printed £284 million profit pre-tax versus £646 million forecasted. The bank announced 2p/share dividend.
Glencore (LON:GLEN) beat estimates as the FY adjusted income printed $1.99billion versus $1-59bn estimated. The company announced to pay $1 billion in dividend amid the rise in commodity prices boosted the business’ performance.
The GBP/USD remains rangebound. Buyers are touted at 1.2420/1.2390 (area including 50 and 100-day moving averages), meanwhile the pound sees little long interest past $1.25. The key mid-term resistance stands at 1.2575 (minor 23-6% retracement on post-Brexit decline).
Finally in the Eurozone, the German two-year Bund yield dropped to the lowest level on record on French election worries; the premium on two-year Bunds hit the highest since 2000. The rising appetite in German assets could bring forward the core-periphery divergence risks as the European Central Bank (ECB) committed to extend its asset purchases program until the end of 2017. The EUR/USD shortly traded below the 1.05 mark on Wednesday. Selling pressures remain solid, as the negative momentum gains pace for an eventual extension of losses toward the 1.0400/1.0380 zone.