Less hawkish Fed minutes confuse markets
(Arnaud Masset, market analyst)
The minutes of the January FOMC meeting did not provide ground breaking information as the essence of the Fed’s message did not change since the previous meeting. Investors were left a little disappointed on reading the transcript as the minutes did not provide further clarity on the institution's thinking about the US outlook under Trump's presidency. The Committee reiterated its view that “it might be appropriate to raise the federal funds rate again fairly soon”, should the current trends in the both the labour market and inflation prove sustainable. Nothing new here. The Committee appeared concerned about the current strength of the dollar that could hamper a still fragile economic recovery.
All in all, the slight retracement of the dollar amid the release of the minutes suggests that investors are still unconvinced about a rate hike at the March meeting. In our opinion, the market is overly optimistic about the real state of the US economy. The election of Donald Trump has boosted confidence and sentiment across the board, sending equities to record levels. However, the true nature of this success has yet to reveal itself. The FX market treaded water on Thursday as market participants were still digesting the minutes. Given today’s light economic calendar, further dollar gains appear unlikely; the dollar index should continue to trade within the 101.00-50 area.
Crude prices are pushing higher on declining inventories
(Yann Quelenn, market analyst)
The WTI crude oil price is still on the rise. The barrel price has gone up above $54 and is almost at its highest level in less than two years. Recent data has shown a decrease in US crude stocks due to less imports. Indeed, inventories have declined by 884k barrels when consensus expected an increase of 3.5M barrels.
There is definitely a clear trend here. The US rigs count is now topping at 751 which is 46% higher than during the same week last year when it was at 597. It is the fifth consecutive straight week. Moreover, markets seem more optimistic since the OPEC confirmed that the output production deal was on track.
We should not forget that it is a plan of the United States to become energetically independent and that the shale gas industry will certainly benefit from upcoming protectionist measures. Trump seems to try to deliver what he promised, which will have a strong impact on crude oil prices.
We target the WTI to reach $60 within the next few months.