IFC Markets - Analytics

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    March rate hike not likely

    US stock market closed higher on Wednesday after the minutes of Federal Reserve January meeting showed the majority of policy makers were concerned about the recent volatility in markets and needed more evidence on strength of US economy for additional rate hikes. The dollar weakened as market participants deemed the minutes dovish and indicating that the Federal Reserve will not raise the rates at its March meeting. Currently traders of federal funds futures are pricing in no rate increases this year according to the CME Group’s FedWatch tool. Live dollar index shows the ICE US Dollar index, a measure of the dollar’s strength against a basket of six currencies, edged down 0.1% to 96.827. The Dow Jones Industrial Average advanced 1.6% to 16453.83. Chevron and Boeing were the best performers among Dow constituents. The S&P 500 rose 1.7% led by energy sector, which gained 2.9% as oil prices posted solid gains. Economic data also supported the stock market rally as Producer Price Index rose 0.1% in January instead of a 0.2% expected decline. Industrial production rose 0.9% in January after 0.7% decline in previous month. However, housing starts fell 3.8% in January to a seasonally adjusted annual rate of 1.1 million while a rise to 1.16 million was expected.

    Today at 14:30 CET initial jobless claims and unemployment claims will be released in US. The tentative outlook is negative. At the same time Philadelphia Fed Manufacturing Index for February will be published, it is expected to slip to negative 2.9 after hitting negative 3.5 in January.

    European stocks ended sharply higher on Wednesday supported by gains in commodities as oil prices advanced. The euro strengthened against the dollar as dovish minutes of Federal Reserve meeting supported the view US central bank will not raise interest rates in March. The Stoxx Europe 600 index rose 2.6%. Germany’s DAX 30 added 2.7% settling at 9377.21, France’s CAC 40 jumped 3% and U.K’s FTSE 100 gained 2.9%. Glencore was among the best performers with shares soaring 17% after the miner announced about refinancing a $8.45 billion loan. Tullow Oil jumped 10%, oil services provider Seadrill gained 7.7%. The data on UK labor market were mixed as January unemployment rate remained unchanged at 5.1% while average weekly earnings in December fell year-on-year to 1.9% from 2.0%. British Pound weakened slightly against the dollar. Today at 10:00 CET December Current Account will be released in euro-zone. And at 13:30 CET the Minutes from European Central Bank Interest Rate Decision will be published.

    Nikkei rose 2.3% today as investor confidence was boosted by advancing oil prices and gains in US equities. Yen continues strengthening against the dollar despite a rise in demand for risky assets. Markets discounted disappointing Japanese trade data which showed exports and imports dropped 12.9% and 18% respectively in January from a year earlier, instead of expected 10.9% and 15.8% declines. Toyota Motor shares advanced 1.7%.

    Oil futures prices are rising today after closing sharply higher on Wednesday. Prices were boosted after Iran said it supports a proposed production freeze at January levels by Saudi Arabia, Russia, Qatar and Venezuela but didn’t commit to a production freeze. Brent crude for April delivery jumped 7% to $34.42 a barrel on London’s ICE exchange. Traders will be watching closely today the weekly US crude inventory report which will be released by Energy Information Administration at 17:00 CET. American Petroleum Institute industry trade group report estimates stockpiles fell 3.3 million barrels.


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