The risk aversion causes a deeply bear market this Monday as the equity markets opened in dark red. The sell-off in energy markets continues; WTI broke below $40 as Brent traded below $45 for the first time since Q1, 2009.
As the debasement in equity and commodity markets lingers, the probability of a September action from the Fed decreases. The market gives no more than 30% chance for a Fed rate hike in September. The reasoning is simple. If the Fed’s policy action is data-dependent, the softening oil prices and slowdown in global growth will certainly be a drag for the US economy. Given the gloomy macro conditions over the globe, the Fed could find it hard to recover potential damages following a premature move. However, we do not rule out the first Fed rate hike before the end of the year; the size of the move is the most valuable piece of information that the market will be chasing at this stage
The speculative value of the first rate hike is indubitably what holds the attention of the market for the moment; however, the path of policy normalisation will define the Fed strategy in the longer run and hides a more complex set of information. There is little chance for the Fed to turn properly hawkish.
The US yield curve softens, with 10-year yields down to 2% for the first time in almost four months.
The CFTC data showed speculators cut the USD long positions last week, net yen shorts were down by 90.1K contracts as net euro shorts reduced from 115K to 92.7K contracts. EUR/USD hit 1.1499 for the first time since February as Asia opened this Monday. USD/JPY aggressively sold to 120.73 (200D MA).
FTSE stocks are down by 3% in London, with BHP Billiton (LONDON:BLT), Glencore (LONDON:GLEN) and Anglo American (LONDON:AAL) leading the bear market. The lack of visibility regarding a potential bottom in commodity prices keep traders on the sell-side of the market
Today’s equity highlight
Lloyds; -1.3%
Britain’s government has reduced its stake in Lloyds Banking (LONDON:LLOY) group to below 13 percent, taking the bank closer to full privatisation.
Rio Tinto (LONDON:RIO); -4.4%
The mining giant expects to deliver 240 million tonnes of iron ore to China this year, 40 million tonnes more than 2014.
BT (LONDON:BT); -1.5%
The FT reported yesterday that BT’s group America unit president has called on the US to require that telecoms rivals allow access to their network at regulated prices.
ITV (LONDON:ITV); -2.3%
Northern Ireland’s UTV Media Plc (LONDON:UTV), have started negotiations to sell its TV franchise to the dominant ITV Plc.
Glencore (LONDON:GLEN); -5.5%
Mining giant have slid on the open as oil prices hit a 16 year low, and as a consequence have slashed their earnings targets for trading division and trim 2016 capital spending plans to $5 billion.