Central Bank Updates

Equities Mixed on Caution ahead of Central Bank Updates

Interest rate decision from the Bank of Canada and Federal Reserve eyed, Caution keeps major risk assets under check. Equities are likely to be muted on mixed earnings forecast. 

Summary: Global equity market saw major stocks and key indices trade and close in red today over-cautious investor sentiment. Aside from caution influenced by expectations surrounding central bank updates, back to back conflicting headlines surrounding Sino-U.S. trade deal also came as a serious blow to investor risk appetite. While US President Trump hinted at the possibility of partial deal being signed earlier than expected, China’s reluctance to commit on big purchases of American farm products and reports from US official, who said interim trade deal might not be completed in time for signing in Chile next month as expected earlier, caused optimism surrounding trade deal to fade away. This caused major stocks and indices in the Asian market to crash during the trading session today.

Further, the European market is also seeing dovish price action in key indices and assets led by a decline in bank sector shares over earnings woes. However, loss in the European market was contained over the news of merger talks between Fiat Chrysler and PSA, which helped provide market bulls with some level of fundamental support. In the forex market, speculative bets from short term traders on caution influenced by geopolitical events and expectations surrounding upcoming central bank interest rate decisions continue to drive price momentum. However, price of major currency pairs remains locked inside familiar price levels as USD remains flat while cautious investor sentiment keeps major global currencies from gaining the upper hand resulting in range-bound price action ahead of North American market hours. 

Precious Metals: Rare metals are trading positive in the global market as the market mood turned sour across the globe on fading trade deal optimism and caution surrounding central bank updates. However, pause in USD’s momentum gave rare metal bulls upper hand as a bid for safe-haven assets from EM markets grew stronger on flat USD ahead of Fed interest rate decision

Crude Oil: Crude Oil price is mostly flat on both major international benchmarks today. Crude oil bulls faced pressure over fading optimism surrounding trade deal on conflicting headlines. However, declines were kept in check thanks to subdued USD and US API weekly data which saw draw in stockpile resulting in lack of directional bias for either side. 

AUD/USD: The pair is trading positive in international market despite fading optimism surrounding trade deal as hawkish comments from RBA’s governor helped offset bearish influence from geopolitical events. Upbeat Aussie inflation data and flat USD on cautious investor sentiment ahead of Fed interest rate decision also helped AUD bulls gain fundamental support keeping price action near weekly highs. 

On The Lookout: Investors focus from across global markets is now on back to back interest rate decision statements set to be released by three major central banks – US, Canada and Japan over the course of the next 24 hours. On the geopolitical events front, Sino-U.S. trade deal is seeing conflicting headlines weighing down investor sentiment which is already being pressured by prolonged multiple front trade war initiated by the USA. While the leaders of both nations are set to meet in Chile next month, headlines suggest a trade deal is unlikely to be signed during the upcoming meeting.

On Brexit front, amid ongoing Brexit Impasse, UK political climate is heating up as all major parties are gearing up for election set to take place in 12th December 2019 following legislation which was approved by UK MP’s in House of Commons yesterday. The legislation is now set to pass through UK’s House of Lords but is unlikely to be opposed as all MPs have agreed that the best way to move forward with deadlock is via election which would give the winning party/coalition power over future proceedings of Brexit.

Central Bank Updates

On the release front, aside from Interest Rate Statement set to be released by Bank of Canada and US Federal Reserve later in the day, US calendar will see the release of EIA weekly Crude Oil stockpile, ADP Non-Farm Employment Change and Preliminary Q3 GDP data in late European/early North American market hours. On earning calendar schedule, US market will see quarterly financial reports from Starbucks, Royal Caribbean Cruises, Motorola, Moodys, MGM Resorts International, General Electric, Garmin, Facebook, Equinix, ADP, Apple, CME Group and Cognizant A. 

Trading Perspective: On forex market front, fading optimism surrounding the Sino-U.S. trade deal is likely to keep most commodity-linked currencies under pressure across North-American market hours. However, traders are also on the lookout for forward guidance from major central banks which will provide a clear directional bias for short to medium term price action of USD denominated major global currencies. US stock and index futures trading in the international market is mostly flat ahead of Wall Street opening on mixed forecast surrounding major earnings reports scheduled to release later today and caution ahead of Fed interest rate decision update. 

EUR/USD: The pair is trading positive in the global market over USD’s weakness influenced rally keeping price above 1.11 handle. But gains are capped owing to fading optimism surrounding Sino-U.S. trade talks and cautious investor sentiment. Traders now await US macro data and Fed forward guidance data for short term profit opportunities. 

GBP/USD: The pair is trading positive today as UK’s House of Commons finally voted on legislation approving an election on December 12th, 2019. This is viewed as a clear sign that the UK will likely avoid a messy Brexit which along with weaker USD, helped push the price above 1.29 handle. Traders now await US macro data and Fed forward guidance data for short term profit opportunities. 

USD/CAD: The pair rebounded from 3-month lows in Pacific-Asian market hours as the market mood took on a cautious tone ahead of interest rate decision updates from Bank of Canada and US FOMC. Fading optimism surrounding Sino-U.S. trade deal and flat Crude oil price weighed down CAD, but broad-based caution in the global market helped cap USD from gaining too much ground in trading session today. Traders now await US macro data and Fed forward guidance data for short term profit opportunities. 

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