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Yellen unlikely to hike in July

Janet Yellen’s speech overnight emphasised the cautious approach the Fed is taking at the moment.

Oil
Source: Bloomberg

The dramatic slowdown in May non-farm payrolls growth and global risks, such as this week’s Brexit vote, are likely to keep the Fed on hold in July. However, GDP is set to bounce back strongly in the second quarter and if the 8 July non-farm payrolls release similarly bounces back, then a rate hike in September is still very much a live possibility. Despite Janet Yellen’s cautious tone, the DXY dollar index jumped 0.5% overnight and US government bond yields continued to increase. Although some of these moves may also have been driven by markets increasingly positioning for the “Remain” vote to win in the UK referendum.

Oil had a choppy session after seeing a pullback following its two-day rally. But news that the Niger Delta Avengers had not agreed to a peace deal with the Nigerian government and a much bigger than expected drawdown in API crude oil inventories (-5.2 million barrels) helped see some buying come in just before the close.

Asian markets are in for a fairly flat open following off from where US markets closed.

RIO’s newly appointed CEO Jean-Sébastien Jacques has announced a major reorganisation of the miner. And it looks like $9 billion worth of non-core assets could be spun-off into a separate listing, similar to what BHP has done with South32. This major announcement could help see some buying in the stock today.

Tesla also shocked markets in after-hours trade as they announced a plan to buy SolarCity. Tesla shares have been hammered in the wake of the decision as many question why the already cash-strapped Tesla needs to further jeopardise its viability as a company by buying out the loss-making SolarCity, two companies that have minimal synergies. Some serious corporate governance questions are likely to be raised over Elon Musk’s association with the two firms perhaps over-riding sensible business decisions.

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