Financial market research and analysis

The Federal Reserve hiked interest rates by 25 basis points to 2.25%, as had been widely expected. Whilst US equities hit session highs on the rate decision, equities sold off sharply as Fed Chair Powell answered questions in the pursuant press conference. An equity selloff and a rise in the dollar against its peers except for against safe haven currencies the Japanese yen and the Swiss franc indicates a level of risk aversion following the Fed’s hike.

A 100 point sell off in the Dow and a sharp move lower in US 10-year yields, is not the expected reaction when the Fed is upbeat about the economy and shows not that much has changed from the strong projections in June. The Fed teed the market up for another rise in December and three more across the coming year. No changes there. However, Powell was quick to point out that rates could be hiked faster if needed or cut if the economy slows. The market had been expecting an unequivocal hawkish hike and these comments from Powell meant this was not the case, causing some disappointment for the bulls.

Data heavy session for EUR/USD
Whilst the EUR/USD ended the previous session 0.2% lower versus the dollar, the euro is seen strengthening in early trade as investors look towards a barrage of data from the eurozone. The ECB economic bulletin, German GFK Consumer confidence and German inflation figures we expect to be supportive of the euro; however, US GDP data and an expected pick up in US durable goods orders could add further pressure to the EUR/USD.

Miners in focus on Chinese Industrial concerns Asian markets stood firmer than US equities, and European bourses are also lining up for a negative start to trading on Thursday. On the FTSE miners will be in focus as base metals dropped overnight following a deceleration in profit growth for Chinese industrial firms to a 5-month low. Industrial profits have almost halved in August compared to July, highlighting concerns for demand in the world’s largest consumer of metals, amid an escalation of trade tensions with the US. With a fresh round of tariffs implemented on Monday, the concern is that the latest round of tit for tat tariffs could hurt China’s already slowing economy.

Oil to $90?
Investors continuing to focus on the imminent US sanction on Iran has sent the price of oil soaring in early trade on Thursday. Brent rallied to $82.22 overnight just short of its recent 4 year high. Upside risks are lining up for oil, Iran produced around 3 million barrel per day at its peak this year, equivalent to 3% of global consumption and the sanction from 4th November will therefore mean that physical market conditions will tighten considerably. There is little doubt that the oil bulls are in control here. The US sanctions on Iran are not fully priced in meaning there is still potential upside for oil. $90 the barrel might not be out of the question over the coming months.


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