June Hike All But Priced In Ahead of FOMC Minutes

We’re expecting a relatively flat open on Wall Street on Wednesday, as traders await the minutes from the FOMC meeting earlier this month having already strongly priced in a rate hike in June, with a second in December looking less certain.

Traders Convinced By June But What About December?

While the dollar’s performance in recent months would suggest otherwise, traders have become increasingly convinced that we’ll see a rate hike in June, the second this year, but questions are being asked about where the Fed will go from there. A lot of the expectation in the final couple of months of the year came from the expectation that President Donald Trump would announce huge spending and tax reform plans but as of yet, that’s not happened.

Source – CME Group FedWatch Tool

The result is that the rally in both equity markets and the dollar have stalled, with other currencies making up ground as central banks elsewhere turn a little less dovish. The S&P and the Dow on the other hand have been range bound over the last few months and have failed each time they’ve tested their highs. While the Dow remains a little off its highs, the S&P appears to be eyeing another test having rebounded convincingly following last Wednesday’s tumble.

Fed Focus Trumps Moody’s China Downgrade

Oil Climbs Ahead of Inventory Data on Anticipation of Output Extension

Brent and WTI crude are both trading in the green once again today and are headed for a sixth consecutive day of gains as we await the latest oil inventory data from EIA and the decision on whether there’ll be an extension, and possible increase, to the output cut that came into effect this year. The rally in recent weeks would certainly suggest traders have bought into it already, leaving oil WTI and Brent very vulnerable to the downside should participating members fail to come to an agreement. With Saudi Arabia and Russia appearing on board though, the chance of a deal not materializing seems slim. The bigger question is whether they’ll live up to market expectations. Another small reduction in inventories is expected to be reported today, in line with what API reported on Tuesday.

China Downgrade Shrugged Off by Markets

Markets have largely shrugged off Moody’s downgrade of China’s credit rating overnight, with even Chinese stocks and the yuan being relatively unfazed. We saw some initial weakness in Chinese stocks and the currency immediately following the announcement but both quickly reversed the moves to trade positive on the day. This sentiment has been shared by investors elsewhere who have also shrugged off the downgrade, with the possible surprise factor being offset by the fact that concerns about Chinese debt and growth are not exactly new.

China Downgrade Irons Australian Dollar

While the FOMC minutes will likely attract the most attention today, we’ll also get existing home sales data from the US and hear from a couple of Fed officials, with Robert Kaplan and Neel Kashkari both due to appear for the second time this week.

For a look at all of today’s economic events, check out our economic calendar.

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