William Dudley Anticipates 2015 Hike, Eschews Further Easing
Many hints at what may be in store for potential easing measures or a rate hike were gleaned from comments given yesterday by the New York Federal Reserve President William Dudley. Among his statements, the notion that further easing is not necessary and that hope prevails for a 2015 interest rate hike were prevalent.
According to Dudley and supporting data, the downside risks to raising the interest rate in 2015 are the current less-than-ideal inflationary conditions and the possibility of tightened liquidity in a post-hike environment. However, Dudley is still hopeful in the implementation of a rate hike this year despite what the troubles he sees in the international financial sphere. Hope is far from concrete, and thusly the probability of a hike diminishes when faced with shaky statements without hints of an absolute. Dudley was quoted as saying that "the case for [a] September interest rate hike [is] less compelling.” His opinions on the future for inflation however were bright, including ideas that the impact of low commodities prices and a higher dollar are not permanent, and long-term trends will reflect this. He dismissed the concept of increased asset purchases, proclaiming that "we are a long way from additional quantitative easing.” On these comments the dollar bounced upwards and pressured gold below the $1132 level.
The American Petroleum Institute reported Tuesday a much larger than expected drawdown in crude oil inventories, reporting a decrease of -7.300 million barrels. On top of this surprise, production levels from the United States have been continuously decreasing, yet both of these facts combined were not enough to pull the price of oil out of the depths. A slight rebound was seen overnight, but was related to a parallel rebound witnessed in similar risk-assets. The direction oil will take is still up for grabs, as American production is at 3-month lows yet the market may stabilize if the Iranian Oil Minister gets his way. Bijan Zanganeh announced his support for an emergency OPEC meeting that will respond to the crisis in the market and attempt to balance prices. Oil’s momentum for the future is as unclear as ever, as the same Minister was heard to say that if the OPEC meeting does not occur, Iran is prepared to increase production significantly in order to stay competitive.
The global markets are finally bobbing in the wake of China’s decision to cut the reserve ratio for banks as well as interests rate two days earlier. Risk-assets have experienced a rebound lately, especially in the US market, where the Nasdaq Composite led the charge with a 4.24% boost during the cash session, bringing its peers along for the ride. The large consecutive drops seen earlier are enticing for value investors, many of which now reentered the market and are responsible for this latest upwards streak. Though currently amidst a rally, the VIX Volatility Index stays at a lofty level, indicating sentiment is not entirely repaired after the recent -16% drop. China seems to be staying afloat with 4% gains seen in some indices, and a 3% gain overall for the Shanghai Composite. European futures are also indicating that a move upwards is likely to persist throughout the session.
Dow Jones Ascending Triangle Trading Opportunity
The Dow Jones Industrial Average is emerging stronger after a panic that began in Chinese equities spread across the globe, releasing a wave of negative sentiment that soured the outlook. The combination of stronger durable goods orders and comments from Federal Reserve President Bill Dudley coupled with the recent Chinese policy adjustments have seen momentum in equity markets reverse back to the upside with the relief rally currently in play for global stock indices. The Dow Jones Industrial Average rose 3.95% before pulling back modestly, with index futures currently consolidating between resistance at 16340 and a trendline. The resulting ascending triangle technical pattern has a bullish bias with any upside breakout above resistance likely to catalyze a further rally in the Dow accompanied by renewed upside momentum.