The Federal Reserve (FOMC) minutes passed with barely a flutter from markets overnight. Wall Street closed almost unchanged for the second day running, with currency and gold markets following suit. This week, the only game in town is the U.S.-China trade talks with everything else relegated to B-team status.
The FOMC minutes signaled that the Fed would finish normalizing its balance sheet by the end of the year. Interestingly, a dig through the text implies they would be prepared to hike rates if inflation accelerates and that the majority of governors judge rates to be neutral right here: i.e. no easing bias.
We would expect more of the same in Asia today with markets consolidating as the world holds its collective breath on the trade talks. There’s a lot of optimism baked into global markets on the outcome of the negotiations and precisely zero detail on the actual result. A sub-optimal outcome could make for a potentially ugly correction in equities and currencies in particular.
Regional highlights today are the Australian employment data this morning and an Indonesia rate decision this afternoon. We expect no movement on the latter as the central bank won’t rock the boat ahead of the Indonesian elections on 17 April.
FX
Both the euro and the pound gave back some of the previous day’s gains overnight as no Brexit breakthrough happened during PM May’s latest visit to Brussels. A glance across the major currencies against the dollar shows an almost unchanged scene versus the previous day, implying the FX markets are well and truly in wait-and-see mode.
Australia Employment data at 0830 Singapore should provide some short term volatility in the Australian dollar, but we expect this to be fleeting.
Equities
The S&P and Dow Jones closed higher by a tiny 0.2% for the second day running. This should be enough to signal a positive start to regional bourses, albeit not a very strong one. As I’ve said, there’s a lot of good news baked into equity prices regarding the trade talks. Stocks will be vulnerable to headlines and traders should stay nimble.
Gold
Gold popped higher to USD1,346 an ounce overnight before falling back to close at USD1,338. Risks around the trade talks have seen gold-buying from the get-go in Asia this morning with it trading gently higher to USD1,340.
The Relative Strength Index (RSI) technical indicator entered overbought territory implying some consolidation was on the cards after the recent rally.
Oil
Oil surged higher again overnight with Brent up 1.1% at USD67.20 a barrel and WTI climbing an impressive 1.5% to USD57.10 a barrel. Trade talk hopes, Saudi supply squeezes and Venezuelan disruptions were rolled out as the usual gang of excuses.
The RSI on both contracts is in overbought territory, implying at least a consolidation at these levels. Again, a lot of excellent trade talk news is baked into oil prices at these levels, and some caution would be well warranted.