Financial market research and analysis

Traders adopted a more cautious approach overnight. Wall Street pared earlier gains to close lower.  Asian stocks pulled back off 6-month highs and European futures are lower. The selloff overnight came as uncertainty over the US – China trade dispute intensified right before the Federal Reserve monetary policy announcement.

Newsflow on any progress in the trade dispute has been slow over the past week. Until recently investors have kept their nerve over the trade war as they were more focused on the more dovish outlook from the FOMC.  However, reports that US – Sino trade talks are turning sour is hitting sentiment. Hopes that a trade deal would be signed by March had already been pushed back to April and now even June. Suddenly a trade deal, which had looked imminent is now months away if it can be agreed at all.

US trade representative Robert Lighthizer and Treasury Secretary Steven Mnuchin plan to travel to China next week for further talks with China’s Vice Premier Liu He. This should offer some support to riskier assets capping any selloff. If the two sides are still talking, there is still hope of a deal.

Crude Eases On Trade Concerns

Crude eased back after strong gains at the start of the week amid growing concerns that US – China trade talks could stall, damaging the outlook for global growth.  Crude oil has rallied around 30% since the start of the year, supported by continued output cuts by OPEC and Russia, and by sanctions on oil producers Iran and Venezuela. Oil traders will now turn their attention towards today’s EIA figures on crude stockpiles. A surprise draw in crude oil inventories, mirroring that of the API data the previous session could lift crude towards the elusive $60 per barrel. A level that hasn’t been breached so far this year.

Watch The Fed’s Dot Plot

Looking ahead, the focus will be firmly on the FOMC. Traders will be scrutinizing the policy statement and any changes to the dot plot. The dollar has lost 0.9% versus a basket of currencies across the past 10 days as investors price in a more dovish Fed. The broad expectation is that the US central bank will keep rates on hold. Attention will be on the Fed’s projection for rate hikes going forward.

Expectations of a cut from 2 projected rates rises this year to just 1 as weaker economic data points to a slowdown in economic growth has pulled the dollar lower heading towards today’s meeting. The dollar is edging slightly higher this morning, most likely on increased safe have flows.

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