Deutsche Bank

Equities Decline on Fading Fed Rate Cut Expectations

Deutsche BankSpeculative betting and news driven momentum to dictate price action in US market hours amid silent macro calendar schedule. Fading fed rate cut expectations hurt market bulls leading to dovish activity in global equities.

Summary: Global market is seeing dovish price action in major benchmark indices and equities as trading session began for the week. Investor sentiment which is already painted red over growth woes stemming from Sino-U.S. trade war, tanked further as expectations for rate cut by US Federal Reserve later this month continues to fade away with each passing day. The ongoing rally could basically be viewed as continuation of rally from where price action closed last Friday. While European market took cues from Asian markets and began dovish price action, loss was capped on influence from banking sector. German banking giant Deutsche bank AG made an announcement relating to Job cuts as a part of its multi-billion dollar reinvention and restructuring plan proposed by its CEO earlier this year. Cues from Deutsche bank stocks gains continues to act as cushion preventing loss from running wild in European market resulting in major indices trading flat post initial declines albeit remaining in red. Forex market is seeing relatively positive price action compared to equities as a recovery in USD had already been priced in for a while now since Fed rate cut expectations began fading last week.

Precious Metals: Both gold and silver are trading with positive bias in the global market today as growth woes stemming from ongoing trade wars, decline in major indices and geo-political issues continue to bolster cautious investor sentiment in the global market. However, rebound in USD on account of easing expectations surrounding rate cut by US Federal Reserve later this year has caused gains to be capped below 0.50%.

Crude Oil: Crude oil is trading with dovish bias in the global market but loss is limited as OPEC members during recent meeting agreed to extend production and supply cuts until March 2020. While it could be interpreted that current market scenario is still one where there is more than enough supply to meet demand even if not in oversupply scenario, extended supply cut tenure and draw in US inventories would slowly led to OPEC members regaining edge in market share while speculative trading and supply demand ratio could push price as high as $100 per barrel by end of this year.

AUD/USD: The AUD/USD pair is trading positive today despite sharp decline and loss suffered last Friday. Gains are capped as fading expectations surrounding rate cut by US Fed boosted US Dollar and Sino-U.S. trade war inspired growth woes capped market bulls’ momentum. The pair is currently eyeing 0.70 handle looking for opportunity to breach past said price mark and gain bullish momentum in immediate future despite most recent attempt ending up as a failure.

opecOn The Lookout: On the release front, both US and Canadian macro calendar remains silent for the day. Price action in US Wall Street will be driven by speculative price betting and broad based news influenced investor sentiment.  Geo-political events have come to a standstill owing to lack of progress for several days now. On Sino-U.S. front while market could see some activity on any update hinting at communication between two parties, unless there is an update hinting that trade deal is to be signed by two parties, global economic growth woes will continue to cap gains. On European market, talks about replacement candidate for Mario Draghi and race for PM succession is also still under progress but results are unlikely to be announced  until latter half of the month which suggests that the week ahead will see price action driven by macro data updates and short term headlines influenced momentum.

Trading Perspective: US stock and index futures trading in the international market is seeing mixed activity ahead of Wall Street opening. While positive influence from Friday’s close and jobs data provide some level of positive influence along with fading expectations surrounding Fed rate cuts, cautious investor sentiment influenced by global economic growth woes adds bearish pressure resulting in mixed activity. However, amid silent macro data and already priced in USD rebound, forex market will see relatively positive price action.

EUR/USD: The pair recovered some of Friday’s loss when the pair hit 2-week lows but has erased gains made in early trading session and is trading with dovish bias. Fading expectations surrounding fed rate cut later this month initially added pressure to EURO and dovish cues were further aggravated by disappointing German macro data outcome. Traders now await fresh cues from US market hours for short term profit opportunity.

GBP/USD: The pair saw recovery price action earlier in the day towards 1.2530 handle owing to political cues from UK on soft Brexit cues as Tory members push for alternative parliament to stop no-deal Brexit outcome. But strong USD in the global market and Boris Johnson’s – the front runner for PM succession firm stance to exit on October 31 deadline has caused GBP to come under pressure and lose all gains made in early trading session. Traders now await fresh cues from US market hours for short term profit opportunity.

USD/CAD: The pair is trading with dovish bias in the global market despite firm USD as CAD receives support from multiple fronts. The pair is trading near multi month lows well below 1.31 handle but slightly above mid-1.30 handle as European market is seeing some level of risk appetite and OPEC’s decision to extend production and supply cut also supported commodity linked currency on its rally against US Greenback. Traders now await fresh cues from US market hours for short term profit opportunity.

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