CURRENCY MARKET WRAP
As of Wed, Jun 19th, Singapore Time zone UTC+8
Dollar Index +0.08%, 97.63
USDJPY, -0.01%, $108.53
EURUSD, -0.24%, $1.1197
GBPUSD, +0.19%, $1.2566
USDCAD, -0.26%, $1.3374
AUDUSD, +0.36%, $0.6877
NZDUSD, +0.58%, $0.6534
The Fed will be the first of the three central banks to make its policy announcement later today and is expected to keep the fed funds rate unchanged at the target range of 2.25-2.50%. But with markets convinced that a rate cut at the following meeting in July is a foregone conclusion, traders could be disappointed if the Fed falls short of giving outright signals of lower borrowing costs. Fed will publish updated economic projections, but with most FOMC members having so far only gone as far as suggesting they are open to rate cuts, it will be interesting to see how many committee members will predict a rate cut in their projections. In the previous projections, the Fed had sharply lowered its median forecasts for interest rates but was still anticipating some tightening over the next couple of years. As a reminder, the market is pricing in a 20% chance of a rate cut later today, and 82% for July, with another 2-3 rate cut by the end of 2020.
ECB President Mario Draghi said the central bank is willing to provide additional stimulus if economic conditions don’t improve and inflation remains low. Sovereign bond yields fell on the news, sending Germany’s 10-yr bund yield to a fresh record low at -0.32% (-8bps), other European Bond Yields also bore the brunt of Draghi’s comments with France’s 10yr Yield falling (-10bps) to make record lows at 0.01%, Italy’s 10yr yield falling (-18bps) to trade at 2.11% and Spain’s 10 yr yield falling (-13bps) to make record lows at 0.39%.
In Trade, Trump updated the market with U.S.-China trade news. Specifically, the president tweeted that the U.S. will resume trade talks with Beijing before the G-20 summit and that he will have an extended meeting at G-20 with President Xi.
U.S. Treasuries spent a bulk of intraday action pulling back from session highs, leaving yields slightly lower. The 2-yr yield declined one basis point to 1.84%, and the 10-yr yield declined three basis points to 2.06%. The U.S. Dollar Index increased 0.08% to 97.63.
S&P500, +0.97%, 2,917.75
Nasdaq, +1.45%, 7,635.40
Nikkei Futures, +0.70%, 21,217.5
Stock market rallied on Tuesday, boosted by U.S.-China trade optimism and dovish comments out of the European Central Bank. Increased hopes for a trade deal contributed to an 4.6% gain in the price of oil ($54.16/bbl, +$2.40) and to the outperformance of the S&P 500 cyclical sectors. The industrials (+1.9%), information technology (+1.7%), energy (+1.4%), and financials (+1.3%) sectors finished with gains above 1.0%. Apple (AAPL 198.45, +4.56, +2.4%) and the semiconductor space, both of which are highly sensitive to U.S.-China trade relations, also outperformed the broader market. The Philadelphia Semiconductor Index climbed 4.3%. Conversely, the defensive-oriented consumer staples (-0.6%), real estate (-0.3%), and utilities (-0.3%) sectors were the lone sectors that finished lower.
Separately, Facebook (FB 188.47, -0.54, -0.3%) released the white paper for its cryptocurrency project. The stock popped to a 2.9% gain at the open, but quickly retreated and finished in negative territory, as the stock had already climbed over 15% since June 3 prior to the session.