Stephen Innes
SPI Asset Management
The Fed and the ECB
Investors are focusing on the two key central bank meetings before the end of the month.
ECB
Smart money is on the ECB altering its forward guidance by unmistakably guiding the market with follow up rate cuts of 10bp each in September and December while introducing tiering to lower the charge that banks pay on some of their excess cash as a possible way to offset the side-effects of its ultra-easy policy.
FOMC
Regardless of the weekend headlines, you would be mistaken if you took recent comments from Clarida, Williams, Evans and Powell as not pushing for a 50 bp cut. These folks are the most influential members on the board, and if it weren't for the recent strength in the US economic data published since June, a 50 bp cut would be the lock. The Fed is in regime shifting precautionary mode so even with 25 bp cut expect them to wax as dovish as can be.
The Yen
Dovish Fed view supports long USDJPY position as it will lower USD funding cost while the pro cycle cut will boost both US growth expectation and US equity markets.
The Pound
Even with the Euro struggling under the weight of negative yields, but given the numerous inches of newsprint column space given the Brexit headlines over the weekend, traders rotated out of short Euro into short Pounds today given the apparent path of least resistance ahead of the ECB which is all but priced into the Euro.
Oil markets
Oil price moved higher after a sequence of events over the weekend, underscored the ongoing risk of supply disruption being brought about from tensions in the Middle East. But taking target practice at a drone is a long way away from taking aim at a $334 million F22 fighter jet. While there are surges of smoke arising for from the Middle East supply-risk factors but with no fire, prices made a round trip today, and we're back to Asia opening level.
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