The Day So Far…

Now that we have reached the mid-point of the week the calendar is due to pick up significantly with the main event today scheduled for 1.30pm when the text from Janet Yellen’s Semi-annual Testimony is released. My expectation is that from a content point of view there will be little change from the Fed Chair from what we heard in the press conference back in June so the question is more to do with how is the market priced and therefore how might it react to a more steady, but hawkish, leaning approach from the Fed. Key points of interest to monitor as to ascertain the policy stance will be centred on commentary around the timing of balance sheet normalisation and the outlook for inflation. Leading into the event the USD took a nose-dive late yesterday afternoon following the revelation that Trump Jnr had met with Russian contacts over damaging material on Hilary Clinton in the run up to the US election. As such, a repeat of the Fed stance today from the Yellen could led to a recovery in the USD and given the bounce of late in T-notes yields could reverse back higher in the short-term. The basis of this movement is of course built on the premise Yellen sticks to the script which has been the tact throughout this year but there is an outside change that with all the hawkish notes struck across the major central banks of late the Fed might sound decidedly neutral as the rest of the world play catch up in policy terms.

Turning our attention to crude oil and WTI has tested the $46.00 handle this morning finding upside momentum from the latest API inventory data last night which showed the biggest draw down in crude stockpiles since September 2016 (-8.13mln vs Exp. 2.45mln) with Cushing coming in at -2.028mln, the largest draw since February 2014. As ever, the US output number will be key in this afternoon’s DoE release and in the interim period we have the OPEC monthly oil market report coming out shortly after midday, a report that should give insight into compliance levels and the strength of global demand.

The Day Ahead…

Tough to pick out a direct strategy ahead of the semi-annual testimony with our preference to be more flexible depending on what is delivered. In summary, I believe we wont get many surprises from Yellen who I would imagine is fairly content with how markets are positioned in order for them to execute their tightening plans before year-end. What has been quite telling is that in comparison to the Trump impeachment inspired sell-off several weeks ago, the son of Donald, has had a much more short lived impact and as such despite the new questions targeted at the administration I do not see this as a focal point in today’s session.

Finally, the Bank of Canada are set to deliver their first rate hike since 2010 in what might be a repeat of the ‘dovish-hike’ strategy we have become accustomed too from the Fed as they try to reassure markets through the normalisation process.

 

Anthony Cheung
Anthony is a leading market commentator with over a decade of experience accumulated as Head of Market Analysis at a leading news and analysis organisation, and now a Director of Amplify Trading.