News & Analysis

Weekly Summary – A “Patient” and “Flexible” Fed

January 11, 2019

By Deepta Bolaky
 @DeeptaGOMarkets

The dynamics in the markets progressed in two different phases. The first half of the week was mostly driven by trade talks whereas the Fed steered up the second half of the week.

Trade talks

The positive comments that have emerged from the US and China officials during the negotiations period brought more optimism in the markets and was able to keep investors mostly upbeat about risk-sensitive assets:

  • President Trump: “Talks with China are going very ”
  • Chinese official: “Conversations are constructive.”
  • US Trade Representative informed the markets that “China has pledged to purchase a substantial amount of agricultural, energy, manufactured goods, and other products and services.”

After a rough tit-for-tat trade dispute in 2018, negotiations and talks were some signs of efforts from both parties which were welcomed by market participants: 

  • Global equities rallied
  • Commodities edged higher
  • Most currencies recovered from the recent flash crash in the FX markets 

However, we saw a brief reversal on a lack of concrete details on the trade talks towards on Thursday. The Fed was, therefore, the supportive factor that helped the financial markets to keep the bullish momentum.

The Fed and an FOMC Minutes

There were more dovish comments by the Fed and the release of the FOMC minutes also echoed the markets’ expectations of a conservative Fed. Jerome Powell adopted a “Patient” and “Flexible” approach which boosted investors confidence and eased off the Fed risk.

Amid a lack of material commitments from the trade talks, Jerome Powell helped investors to hold on to gains:

  • Wall Street clocked five consecutive days of gains. Unlike the buoyancy at the start of the week, markets rose mostly on Utilities and Real Estate towards the end of the week.
  • European stocks also traded more cautiously amid trade talks uncertainties.
  • The US dollar pared some of this week losses on Thursday but remains under pressure after dovish Fed’s comments.

The dynamics in the markets show that worries of slowing global growth will stay at the forefront of investors’ minds. The markets were pretty resilient despite the fears in the markets as investors are more vigilant in their positionings.

The US Government Shutdown

The shutdown is on its way to become the longest one in the US history as it enters into Day-20 without much signs of a compromise.  While the repercussions of a partial shutdown are contained, a prolonged shutdown can worsen the bearish sentiment in the markets. Business and consumer confidence can take a hit if not resolved. We may also see indirect effects of a slowdown in consumption which can affect the US economy.

Economic Data Releases

Eurozone: A series of surveys have shown a drop in the business climate, consumer confidence and economic sentiment in the region. EURUSD managed to edged higher mostly on the back on the US dollar weakness. 

China: The inflation figures have once again showcased the slowing growth in the world second largest economy. However, these figures were also signs of good news given that it gives more room to the PBOC to stimulate its economy. The reactions after the CPI releases were therefore contained. 

Australia: The economic releases were mixed. Housing data disappointed while Retail Sales came above expectations. The AUSDUSD pair claimed back the 0.72 handles. 

Oil Markets

The outlook on the supply side has been more promising than last year. Rather than the demand side, traders have been monitoring the decrease in production cuts and inventories which helped oil prices to climb higher.

Oil prices saw a slight pulled back on Thursday for the first time in two weeks after the EIA reported a lesser draw in inventories than initially forecasted.

  • WTI closed in positive territory for nine consecutive days and is currently trading above the $50 mark.
  • Brent Oil bolstered higher above the $60 mark.

USOUSD & UKOUSD (Hourly Chart)


Source: GO MT4

Based metals swung up and down mainly by the movement of the US dollar as trade hopes, and the Fed were favouring demand for risk-sensitive assets.

Cryptocurrencies

Cryptocurrencies failed to extend the 2019 recovery and dropped sharply to the downside:

  • Bitcoin dropped to $3,600
  • Ethereum is trading below $125
  • Litecoin fell to a low of $31
  • Ripple is trading in the 0.32 region

BTCUSD, XRPUSD, LTCUSD and ETHUSD (Hourly Chart) 


Source: GO MT4

Monday, 14 Jan 2019
Indicative Index Dividends
Dividends are in Points
ASX200 WS30 US500 US2000 NDX100 CAC40 STOXX50
0 0 0.289 0.05 0 0 0
ESP35 ITA40 FTSE100 DAX30 HK50 JP225 INDIA50
0 0 0 0 0 0 0

 

Economic Calendar