Established in 1974
185,800 clients worldwide
Over 15,000 markets

US markets await FOMC minutes

Market volatility drops ahead of key Federal Open Market Committee minutes.

US flag
Source: Bloomberg

M&S see first rise in profits in four years

European markets have taken on an unsurprisingly subdued tone today, where the hope is that this evening's FOMC minutes are somewhat more entertaining than those from the Bank of England this morning. While we did see a slightly more hawkish tone, the fact is that with the UK currently in deflation, it is highly unlikely that we will see rates rise anytime soon. The continued impact of yesterday's particularly dovish off-the-cuff comments from the European Central Bank's Benoit Coeure and Christian Noyer has been relatively muted within equity markets as Greek fears continue to dominate.

Today's announcement from Syriza spokesperson Nikos Filis that Greece would default unless a deal was reached by June 5, provided a clear public timeline for the conclusion of negotiations. Ultimately we know that the Greeks will not make it through June without substantial funding, yet it doesn't seem likely that there is a way to appease both creditors and Syriza which is driven by its perceived mandate to avoid austerity. Something has to give and ultimately the ace card is with the ECB and IMF on this one, meaning a referendum could be around the corner.

Initial jubilation from Marks & Spencer shareholders has been tempered somewhat despite the long due news that the firm has turned a corner to post its first rise in profits for four years. While the decision to subsequently reward long suffering shareholders by a £150 million share buyback scheme is welcome, there is a clear possibility that the recent shift in profits may be a short-term phenomenon. Renegotiated contracts can be great for the bottom line, but such gains are a one-off and soon the products need to stand on their own feet.

Banks are back in the news, with yet another reputation busting market manipulation fine dished out by the UK and US authorities today as Barclays, JPMorgan, UBS, Citi, RBS and BoA have all taken the hit together, presumably to avoid being seperated from the pack and seeing a Bob Diamond-bashing backlash lick we saw with the Libor scandal. However, with most of these seeing substantial gains, it seems investors feared the worst and that cumulative $6 billion slap on the wrists is seen as a light touch.

FOMC minutes likely to provide more questions

US markets are cautiously tiptoeing towards today's FOMC meeting following the new record highs seen in the likes of the Dow earlier this week. Janet Yellen's Federal Reserve can be as boring as brilliant at times, with markets not knowing if they are walking towards a party or a recital of a financial textbook when the time comes around. However, today seems like a day to leave your party hats at home, with the FOMC minutes likely to provide as many questions as answers. Was Q1 weakness solely a weather-based phenomenon? What is the exact data pickup needed to see a rate hike put back into play? Will inflation move back towards target in the near future?

The truth is that the Fed probably doesnt know  the answer to any of these questions and despite there being a clear possibility of a surprise today, there is also a high likeliness that this will be a bit of a non-event.

Target's earnings were on point today, outperforming market expectations for both quarterly profits and earnings thanks in large part to a substantial increase in sales of high margin 'signature catergory' goods. An announcement that Target would resume share buybacks, two years after its abolition, points to the firm finally having recovered from the data breach crisis back in 2013.

Oil could face further downside

A third conscutive weekly fall in US oil inventories hardly lit a flame to oil prices as a muted and short-lived bounce higher points to the fact that despite reserves falling another 2.2 million barrels, there are still over 60 million barrels in US cushing stocks.

With near all-time high levels of crude awaiting release onto the markets, alongside a whole raft of producers waiting to bring their operations back on board, I can only seen further downside in the price of oil in the coming weeks.

Dollar strength could dominate headlines

US dollar strength appears to be coming back into fashion, with GBP/USD and EUR/USD seeing significant losses so far this week. The more hawkish tones from the BoE earlier have provided some minimal support to sterling prices, but with the month-long resurgence in both currency pairs seemingly under fire, it is possible we could see the dollar strength becoming the main story once more.

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication.