All eyes on FOMC rate decision this week: The outing will mark the first of the big-splash quarterly conclaves that tend to bring policy changes to be chaired by Jerome Powell, who replaced Janet Yellen at the helm last month. Traders are worried that a recent hawkish shift in officials’ rhetoric means the sit-down will mark an acceleration in the rate hike cycle, threatening what they are hoping is broadening pickup in global growth. That saw the MSCI World stock index – a baseline for broad-based market sentiment – locked a holding pattern while the US Dollar roared higher in the closing 48 hours of trade last week.
Gold at key chart threshold before Fed announcement: A hawkish turn in US monetary policy is likely to be unmistakably negative for gold, the markets’ standby alternative to paper assets. Tellingly, the yellow metal is pressuring long-standing range support in the 1312.36-16.50 area before this week’s FOMC announcement hits the wires. Breaking below it on a daily closing basis opens the door for a test of the $1300/oz figure. Near-term range resistance comes in at 1341.04.
EUR/GBP breaks out before Barnier, Davis meeting: The British Pound registered a notable victory against the Euro on Friday, with the EUR/GBP exchange range dropping through and closing below support guiding the move higher since late January. The move comes before UK Brexit negotiator David Davis and his EU counterpart Michel Barnier meet in Brussels on Monday. They may announce that agreement on the terms of the post-Brexit transition has been reached. EUR/GBP is now eyeing 0.8689, a double bottom capping downside follow-through since early December 2017.
Energy shares shine in quiet Wall Street trade: US shares mostly marked time Friday, with the bellwether S&P 500 index posting a meager gain of 0.17 percent. Energy and utilities shares stood out, adding 1 percent in a move that echoed a late-morning surge in crude oil prices. The clear-cut catalyst for the rally is not readily apparent. ICE speculative positioning statistics may have contributed, however. They showed that large speculators’ exposure to Brent crude futures has turned the least net-short since early August 2017.
AUD/USD menacing critical chart support: Two days of aggressive selling brought the Australian Dollar to challenge the March swing bottom just above the 0.77 figure. A break below this barrier would open the door for a challenge of rising trend support guiding the currency higher against its US counterpart since January 2016. A bounce sees the first layer of noteworthy resistance at 0.7875, followed by the February 16 high at 0.7989.
Australian stocks break three-day losing streak: Australia's ASX 200 equities benchmark snapped a three-day losing streak, closing up 0.5 percent at 5949.42 on Friday. The index was 0.2% lower on the week. The financial sector was Friday’s main drag on the index while all other sectors finished in the green, with consumer staples were the big winner. The conglomerate Wesfarmers Ltd gained 6.3%, the biggest rise since October 2009, to trade near a 52-week high. It announced plans to divest from the Coles supermarket chain that it acquired 11 years ago.
China saw boosting metals prices despite headwinds: China is the world’s biggest metals consumer, so its growth target is always a point of focus for market-watchers. It has been left unchanged at 6.5% this year. Those who believe in that number may find it difficult to attain as China cracks down on financial risks and excess corporate leverage. Meanwhile, capacity cuts for the Blue Sky campaign constrict supply by closing aging and idle production capacity to curb pollution. Despite this, Chinese consumption and base metals demand is expected to climb steadily and support prices.
The global inflation outlook is firming: The ingredients for coordinated global inflation really came together this week as consumer confidence took off. The US Michigan Consumer Sentiment Index hit a 14-year high on Friday while the Current Conditions gauge that tracks American’s perceptions of their finances hit a record high. Separately, a gauge of small business optimism hit the second highest reading this week since 1983 while the IEA said in its monthly outlook that a crude oil supply gap could be exacerbated this year due to a sharp drop in Venezuelan output. Meanwhile, institutions remain aggressively short Treasury bonds, which is seen as a proxy view predicting inflation and the normalization of central bank policy. One reason may be that President Trump’s tariffs on steel and aluminium are anticipated to accelerate price growth. As central banks like the RBA remain patient, they are also likely confident that their inflation targets will be hit in due time.
SPI futures moved 28.57 or 0.48% to 5949.42.
AUD/USD moved -0.0071 or -0.91% to 0.7727.
On WallStreet: Dow Jones 0.5%, S&P 500 0.5%, Nasdaq 0.14%.
In New York: BHP 0.51%, Rio 0.61%.
In Europe: Stoxx 50 0.9%, FTSE 100 0.62%, CAC 40 0.48%, DAX 30 0.75%.
Spot Gold moved -0.26% to US$1312.7 an ounce.
Brent Crude moved 0.95% to US$65.74 a barrel.
US Crude Oil moved 1.24% to US$61.95 a barrel.
Iron Ore moved -2.27% to CNY473.5 a tonne, SGX Iron Ore moved -0.95% to US$71.8 a tonne.
LME Aluminum moved -0.19% to US$2085 a tonne.
LME Copper moved -0.98% to US$6920 a tonne.
10-Year Bond Yield: US 2.85%, Germany 0.58%, Australia 2.69%.
Written by Ilya Spivak, Market Strategist, DailyFX