Asian markets spent the day trading around unchanged levels as investors were unwilling to commit ahead of the Federal Reserve monetary policy meeting results due Wednesday in the U.S. In addition to the Fed, Asian markets will also have the Bank of Japan monetary policy statement to contend with on Thursday, which could make for some interesting action in markets.
European markets paused on Wednesday as investors were wary of making any moves ahead of the U.S. Fed monetary policy statement that wouldn’t be revealed until after markets in Europe were closed. For the most part major indices across Europe ended the day with slight gains, although the IBEX35 in Spain saw a drop of 0.8% after Spanish police arrested Catalonia officials for their allege involvement in planning a vote for Catalonia’s succession from Spain. London’s FTSE edged lower on the day as well, with a briefly stronger Pound dragging the index lower in the morning, although the retail sector remained strong.
U.S. markets were flat on Wednesday following the Federal Reserve decision to begin unwinding their $4.5 trillion asset purchase program, reducing the size of the balance sheet for the first time in nine years. The Fed kept interest rates unchanged, and is going to begin reducing the size of their Treasury holdings by $10 billion a month. They also indicated that an interest rate hike later this year is still on the table. Investors seemed cautiously optimistic at the size of the monthly sales as it is small enough that it shouldn’t disrupt normal market activity. There was also a commitment to increase the size of Treasury sales by $10 billion a month every three months until the sales pace reaches $50 billion per month.
FOREX
EUR/USD
After trading above the 1.2000 level ahead of the Federal Reserve meeting, the pair crashed lower after traders learned that a rate hike is still being considered by the Fed for later this year. The drop took the pair down by more than 100 pips, crashing through the 1.1900 level. The changed prospects for the U.S. interest rate scene and U.S. dollar could see the pair continuing lower for several sessions, though to be fair there is a zone of support at the 1.1850 level.
AUD/USD
The pair remains stubbornly stronger, rising and tapping the 0.8100 level on Wednesday, the highest it’s been since May 13, 2015. Later in the day the pair retreated from the obvious resistance at that level, but it remained comfortably above the 0.8000 level at the close, and the RBA is likely to soon become concerned over the strength of the Australian dollar if it continues at these heady levels.
Cryptocurrencies
It was another fairly quiet day in the cryptocurrency market, devoid of any additional news about Chinese authorities cracking down on cryptocurrency trading and exchanges, or statements from the U.S. financial sector leaders. There was a dip during the Asian session, but all the major cryptocurrencies recovered and finished the day basically flat as the market stabilizes and consolidates.
Commodities
Metals
Precious metals gained on Wednesday ahead of the Fed meeting results, with gold snapping a three session losing streak. The gains were fleeting however, as precious metals crashed lower in electronic trade following the Fed’s monetary policy statement as traders saw that the Fed remains poised to raise interest rates one more time this year. The USD also gained on the news, which put additional pressure on precious metals and is likely to continue doing so in the coming days.
Oil
Crude made solid gains Wednesday on expectations for OPEC to extend its production cuts that are slated to expire in March 2018, as well as increased tensions between the U.S. and Iran. Even with the U.S. reporting a bigger than expected leap in crude inventory levels, and greatly increased production, crude was able to hold onto impressive gains of 1.9% for WTI crude and 2.1% for Brent crude. The U.S. data will be examined more closely no doubt, and could cause a pullback on Thursday.
Indices
S&P 500
The benchmark index ended with a slight gain on Wednesday as investors first waited for, and later digested, the Federal Reserve monetary policy statement, and news of the beginning of the unwinding of the massive Treasury balance sheet held by the Fed. Seven of the S&P sectors ended in the black, with losses coming from the technology, consumer staples, utilities and real estate sectors. The energy sector saw the best gains as crude rallied strongly during the session.
Stocks
Alibaba (NYSE:BABA)
Shares of the Chinese ecommerce company have been on a tear with 101.3% increase so far in 2017. Although it recorded 1.6% loss on Wednesday it doesn’t look like the uptrend is slowing at all, with the price chart showing a continuing steady rise. The drop came in response to the Chinese supply chain firm BEST, which has Alibaba as one of its largest backers, raising just $450 million in its IPO versus expectations of a nearly $1 billion IPO. We think Alibaba shares will bounce back quickly from the news, and then continuing moving steadily higher.