US Dollar up as Fed says labor and housing markets are improving

US stocks ended higher on Wednesday as Federal Reserve left the rates unchanged and stated the US economy continued to strengthen. The US dollar strengthened, with the ICE US dollar index, a measure of dollar’s strength against a basket of six currencies, adding 0.5%. S&P 500 index rose 0.7%, the energy sector leading the gains with 1.28% increase. The Fed said the economy is expanding “moderately”, upgraded its assessment of labor market while saying housing market showed “additional” improvement. The statement said Fed needs to see “some further improvement in the labor market”, adding the modifier “some” to the wording of its previous meeting statement. The policymakers left the market’s expectations of rate hike later in the year virtually unchanged, stating they need to see labor markets improve further and reiterating the Fed must be “reasonably confident” inflation will move back to its 2% goal over the medium term. Today at 13:30 CET second quarter preliminary GDP and Personal Consumption will be released in US. The tentative outlook is positive as growth is expected to rebound to 2.5% and first-quarter GDP will likely get revised upward due to improved methodology of seasonal adjustments to GDP components. At the same time Initial Jobless Claims and Continuing Claims will be released. And at 15:30 CET Natural Gas Storage Change will be released by the Energy Information Agency.
European stocks rose on Wednesday on strong earnings reports and corporate takeover bids while the euro weakened against the dollar ahead of FOMC statement. The Stoxx Europe 600 gained 1.0%. German HeidelbergCement fell more than 6% after news it plans to take a 45% stake in Italy’s Italcementi for €1.67 billion. Italcementi soared 49%. Italian oil group Saipem fell 3.4% after lowering its annual forecast and plans to cut 8,800 jobs by 2017. Peugeot gained 6% after the car maker reported its first profit of 571 million euros since 2011. So far this quarter 53% of companies on the pan-European STOXX 600 index have met or beaten market expectations with their results. Today at 10:00 CET July economic, consumer and business confidence indexes will be published in euro-zone. The tentative outlook is positive for euro. At 13:00 CET July preliminary consumer price index will be released in Germany. The tentative outlook is neutral. And tomorrow at 7:00 CET June Retail Sales will be released in Germany. The tentative outlook is positive.
Nikkei rallied 1.1% today on strong blue-chip corporate reports as yen weakened against the dollar. Tomorrow at 0:30 CET June Unemployment Rate, Household Spending and Consumer Price Index will be released in Japan. The tentative outlook is negative. At 6:00 CET June Housing Starts will be released. The tentative outlook is negative.
Chinese stocks were lower today on reports banks were investigating their exposure to the stock market from wealth management products and loans with stocks as collateral.
Oil prices rose sharply on Wednesday as official data showed US weekly crude inventories fell by 4.2 million barrels, more than twenty times the expected decrease. At the same time US oil production in the lower 48 states also fell by 151 thousand barrels to total 8.95 million barrels a day.
Gold prices edged higher on Wednesday but remained near last week's 5-1/2-year low as investors tried to assess the likelihood of interest rate hike in September.US stocks rose sharply on Tuesday as the Chinese stock market stabilized and corporate reports beat expectations. The US dollar edged higher, with the ICE US dollar index, a measure of dollar’s strength against a basket of six currencies, adding 0.1%. S&P 500 index rose 1.1% to 2091, with the energy sector adding 3% and leading the gains. Today MasterCard Inc., Facebook Inc., Altria Group Inc. and Humana Inc. will report quarterly earnings. The Federal Reserve will release the interest rate statement at the close of two-day meeting today at 19:00 CET. While no change in interest rates is expected today, markets are waiting for clues on rate hike timing and are divided on whether the central bank will raise the rates in September or December for the first time since 2006. Fed Chair Janet Yellen had stated in her July 15 testimony that the central bank will raise interest rates some time later in the year as the economy continues to evolve, the decision being dependent on incoming economic data. Since then the economy has not moved much toward the 2% inflation target and though the labor market has improved the economy is not at full employment yet as Yellen said in her testimony. We believe that the Fed will reaffirm the plans for hiking rates this year, leaving September hike a possibility, but given also the weakness in global economy as evidenced by recent turmoil in Chinese markets December rate hike is more likely. Today at 12:00 CET Mortgage Applications will be released by the Mortgage Bankers’ Associations in US. At 15:00 CET June Pending Home Sales will be released. The tentative outlook is positive. At 15:30 CET US Crude Oil Inventories will be released by Energy Information Administration.
European stocks rebounded on Tuesday amid strong earnings reports and rising merger and acquisition activity as concerns over sell off in China’s markets subsided. The euro weakened against the dollar. The Stoxx Europe 600 gained 1.1% after Monday’s 2.2% drop, Germany’s DAX 30 rose 1.1%, France’s CAC 40 added 1%. Today no important economic data are expected in euro-zone. Tomorrow at 8:55 CET July employment change, unemployment rate will be released in Germany. The tentative outlook is positive. At 9:00 CET ECB will publish the July economic bulletin. Today at 09:30 CET Net Consumer Credit, Mortgage Lending and Mortgage Approvals will be released in UK. The tentative outlook is positive.
Nikkei fell 0.1% today as yen edged higher against the dollar and Fanuc Corp and Tokyo Electron plunged more than 10% after they cut their forecast for the year.
Chinese stocks are edging lower today, showing signs of stabilization after the central bank injected more liquidity into the system, pledging it would take additional monetary easing measures to halt the stock selloff that resulted in more than 8% plunge on Monday.
Oil prices are falling today on oversupply concerns as data showed OPEC production was around 3 million barrels-per-day more than daily demand in the second quarter.
Gold prices are edging higher after ending lower near $1100 an ounce on Tuesday as investors awaited the Federal Reserve interest rate decision for clues when the rate hike will happen. A survey from metal consultancy GFMS indicated that demand for gold in the second-quarter fell to its lowest level since 2009 as Chinese demand for the precious metal fell.