BoE and FOMC Minutes

Analisi Giornaliera - 08/10/2015

Bank of England Monetary Policy Decision Due today With Expectations of a Dovish Tone


Subdued growth pointing to a slowdown in the UK’s economic activity alongside the weakness from China could put the BoE on the back foot, taking a more dovish stance. The FOMC meeting minutes will be closely scrutinized as the markets expect to better understand the reasons that led the US Federal Reserve to hold off from hiking interest rates.

Commodity Currencies Lead

The Australian and the Kiwi dollars remain at the forefront notching rallies of 1.82% and 2.43% respectively. The gains in the commodity risk currencies comes against the backdrop of a weaker US dollar and reduced inflows to safe haven currencies. The Swiss Franc and the Japanese Yen have remained weak despite the relative security of these currencies with commodities beginning to show signs of recovering off the lows from last week. Crude oil prices retreated from highs, giving back some of the gains after yesterday's crude oil inventory figure showed a larger than anticipated build to stockpiles. WTI crude oil lost -1.84% yesterday after prices briefly touched the multi-month highs of $49.67. The recent rally in gold futures also showed signs of stalling, with prices pulling back towards support levels, after falling back below the $1150 handle and trending just above support at $1142.


US Earnings Contribute to Anxiety

After the sharp selloff in August, the US quarterly earnings season kicks off later today with Alcoa set to report its quarterly earnings after market hours. Investors are expecting to see a rather subdued earnings season this quarter with concerns about the slowdown from China and the stronger US Dollar weighing on sentiment. The S&P 500 index has managed to recover from the lows of 1873 and 1883 but resistance near the critical 2000 level remains a difficult level to overcome. Prices are anticipated to remain range-bound in the longer-term, with a bullish bias expected only after a break and close above 2000. For the interim time period, the equity markets could continue to trend sideways with no incentives for any rally, especially considering the end of the Federal Reserve’s quantitative easing and the BoJ refraining from expanding its stimulus program.


Focus on BoE Monetary Policy

The Bank of England convenes today for its monetary policy meeting. No changes are expected as the UK bank rate remains at 0.50%. Focus will be on the MPC member's votes which currently has one dissenter in favor of rate hikes against 8 maintaining a neutral stance. Inflation in the UK showed signs of a pickup, but is largely expected to stay subdued for the most part of this year. More recently, economic data released from the UK showed a slowdown in the GDP growth in the third quarter with the fourth quarter GDP also expected to be low, off the highs of 0.70% growth seen in the second quarter. Yesterday's industrial and manufacturing production managed to provide a boost for the British Pound which hit the weekly high above 1.5300. Should a vote shift from the hawkish camp back to the dove camp, the British Pound could come under renewed pressure.


FOMC Meeting Minutes

The main focus for the financial markets today is the upcoming release of the FOMC meeting minutes from the September meeting. Considering the importance of the September meeting despite the Federal Reserve opting to leave interest rates unchanged, the minutes could perhaps reveal the reasons why the FOMC decided to leave the Fed Fund rates unchanged at historical lows of 0.25%. The US dollar is likely to come under further pressure once the rationale is revealed, providing another catalyst for downside for a currency which has already weakened substantially since last Friday's weak NFP print. USDJPY remains range bound, with no clear bias being established after the Bank of Japan refrained from expanding its QQE program yesterday. USDJPY has been trending lower for the past three sessions but remains mired in a sideways range within the larger triangle pattern, potentially biased to the downside.


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