Asia week ahead: More policy clarity needed from the Fed

The minutes to the Fed’s July meeting were somewhat confusing. 

Oil Barrels
Source: Bloomberg

It showed the divided view among the Fed policymakers, and the series of Fed comments made these past days did not clarify.

While the minutes signalled that the Fed may still move on rates as early as September, they are unlikely to do so (or unable to do so), without a stronger consensus on the outlook for growth, jobs and inflation. Although the job gains for June and July put to bed the considerably weak May non-farm payrolls, soft readings from inflation and retail sales do not build the case.

As things stand, investors are sceptical about any rate hikes this year. The future markets are pricing in a 20% probability of a September move, and a near 50% on an increase in December. Until the Fed officials come to a consensus on US prospects, they would generally prefer to keep their options open and maintain the flexibility to adjust policy based on incoming information. This means that policymakers’ comments are more noise than substance, as long as economic data stays mixed.

But that won’t stop speculators from speculating. Fed chair Janet Yellen will be speaking at next Friday’s annual monetary policy symposium in Jackson Hole. All eyes will focus on her speech, hoping that she may provide clarity. We just want to know if the Fed is leaning towards a more dovish or hawkish stand

For what it is worth, there is significant scope for disappointment at the symposium. Yellen may spend more time talking about longer-term monetary policy frameworks than providing the timeframe for the next hike. This raises the likelihood for a prolonged wait for the next rate hike.

So instead of pining for central bankers’ quips, market participants should pay more attention to US data in the coming week. Figures on housing, durable goods orders, manufacturing PM and GDP will be due.


Oil freeze?

Due to the potential revival of another output freeze discussion, oil prices are displaying renewed strength. Prices rallied over 20% since slipping below $40 early this month. Declining US crude supplies and rising gasoline consumption also armed oil bulls.

I’m cynical about the scenario where major oil producers agree to cap oil production at current levels. Until Iran raises production to pre-sanction levels, I don’t see them committing to any deal. If Iran doesn’t play ball, Saudi Arabia is not expected to play nice, since the latter scuttled the previous talk as the former rejected the proposal.



Closer to home, there are talks that the local government may announce more support for embattled oil-related companies who are struggling to service their debt. When the Finance Ministry announced its budget plans in March, they included a loan assistance programme to lessen smaller businesses’ financial strains. Since then, the situation has deteriorated. Oil services provider Swiber has abruptly fall under interim judicial management.

Even if the major oil producers agree to work together to stabilise oil prices, the damage to the industry has been long done. It would take time for the industry to pick up. The Singapore Ministry of Trade and Industry told Bloomberg that smaller businesses supporting major oil companies were hit since 2015. The Ministry added that they have been working with affected companies to place retrenched workers in adjacent industries.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material 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 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. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

CFD’s zijn complexe instrumenten en brengen vanwege het hefboomeffect een hoog risico mee van snel oplopende verliezen. 79% van de retailbeleggers lijdt verlies op de handel in CFD’s met deze aanbieder.
Het is belangrijk dat u goed begrijpt hoe CFD's werken en dat u nagaat of u zich het hoge risico op verlies kunt permitteren.
CFD’s zijn complexe instrumenten en brengen vanwege het hefboomeffect een hoog risico mee van snel oplopende verliezen.