Fed raises rates and signals two more increases this year – Binary Options Daily Review

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Markets Report

Thursday 14th June 2018
Prepared by Barry Jenkins, MarketsWorld Binary Options Analyst

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Market Index Closing Level Move on day Intraday Market Range
CAC 5,452.73 – 0.64 5,447.90- 5,474.01
DAX 12,890.58 + 48.28

12,781.20 – 12,905.70

Dow Jones 25,201.20 – 119.53 25,191.42 – 25,362.07
FTSE 7,703.71 – 0.10 7,677.17 – 7,746.70
IBEX 9,899.10 – 15.30 9,838.30 – 9,923.90

Closing Markets Summary

Dow Jones

U.S. stock indexes gave up early session gains to close lower on Wednesday as the Federal Reserve raised benchmark interest rates by a quarter of a percentage point, as expected, and signalled that the domestic economic growth outlook warranted a more aggressive rate-hike path than investors had previously anticipated, with two more hikes now expected by the end of this year, compared with one previously. The central bank, which raised its benchmark overnight lending rate a quarter of a percentage point to a range of between 1.75 percent and 2 percent, also dropped its longstanding pledge to stimulate the economy “for some time.” Fresh projections from policymakers suggested that inflation would run above the Fed’s 2 percent target, hitting 2.1 percent this year and remaining there through 2020. Stocks were volatile after the statement but ended near the lows of the session, and selling was broad-based, with most S&P sector indexes ending lower. Economic data showed that a measure of wholesale inflation jumped 0.5% in May, against the backdrop of rising oil prices adding upward pressure on inflation in a steadily growing economy marked by supply bottlenecks and a growing shortage of skilled labor. Companies that featured included media and telecom shares, which mostly rose after a ruling that approved AT&T Inc’s $85 billion deal to buy Time Warner Inc. Shares of HBO channel owner Time Warner rose 1.8 percent. AT&T dropped 6.2 percent, sending the S&P telecom services index down 4.5 percent. After the close, Comcast Corp offered $65 billion for Twenty-First Century Fox Inc media assets. Twenty-First Century Fox shares were up 0.2 percent in after-hours trading, after closing the regular session up 7.7 percent. Comcast shares ended the session down 0.2 percent. The S&P 500 closed down 11.22 points at 2,775.63. The Dow Jones closed down 119.53 points at 25,201.20. The Nasdaq Composite, which had earlier set an intraday record at 7.748.96, turned lower to close down 8.10 points at 7,695.70.

Europe

European equity markets closed mixed on Wednesday swinging in and out of the red for most of the session as investors looked ahead to the U.S. Federal Reserve’s latest monetary policy decision. An update from the European Central Bank set for Thursday also was in focus for investors. The pan-European Stoxx Europe 600 Index closed up 0.2% at 388.25. The euro was firmer against the dollar with the EUR/USD at 1.1785, slightly up from 1.1745 late Tuesday in New York. European stocks ran into a headwind in the form of data showing industrial production in the euro zone fell by a larger-than-expected 0.9% rate in April. That’s underscored some questions about the strength of the economy at a time when the European Central Bank is discussing when to end its €2.5 trillion ($2.95 trillion) program of bond buying, or quantitative easing. The Federal Reserve, led by Chairman Jerome Powell, should issue its target range for the federal-funds rate at the end of its two-day meeting on Wednesday. Investors are pricing in expectations for a rise of 25 basis points to 1.75% to 2%, from the current range of 1.5% to 1.75%. That would be the second U.S. interest rate hike this year. Companies that featured included European payment processor Adyen NV which doubled during their trading debut on the Euronext Amsterdam exchange. The shares, priced at €240 each, opened at €400. The stock hit an intraday high of €503.90 and ended at €455.00. Aeroports de Paris SA rose 6% as the French government said it’s planning to sell stakes in the airport operator and other companies in a new round of privatization. Industria de Diseno Textil SA moved up 3.5% after the Spanish parent company of Zara, an apparel retailer, said same-store sales grew at a slightly slower rate of 5% in the latest quarter, compared with a year earlier. But its profit margin unexpectedly improved. On regional markets the French CAC closed down 0.64 points at 5,452.73, the German DAX closed up 48.28 points at 12,890.58 and the Spanish IBEX closed down 15.30 points at 9,899.10.

FTSE

The FTSE 100 ended a choppy session little changed on Wednesday, with investors waiting to see what the U.S. Federal Reserve’s decision on interest rates will be, while latest figures on British inflation came in as expected. The pound was firmer against the dollar with the GBP/USD at 1.3381, up from 1.3370 late Tuesday in New York. Against the euro the GBP/EUR was at 1.1354, down from 1.1384 in the prior session. Oil and gas shares dropped even as oil prices turned higher, the oil and gas sector has a nearly 17% weighting on the FTSE 100. Oil prices swung higher after a U.S. government report revealed a bigger than forecast decline in domestic crude supplies. But oil prices gains were limited as the Energy Information Administration’s report also showed a sizable weekly climb in total U.S. crude production, and as recent data offered evidence of a pickup in output from the Organization of the Petroleum Exporting Countries. Economic data showed that consumer price inflation was at 2.4% in May, in line with forecasts. The Bank of England takes into account that data when setting monetary policy. But a recent run of than weaker than forecast economic figures have raised questions about when the central bank will resume lifting rates. Its last rate hike of 25 basis points to 0.5% was in November, the first rate increase in a decade. Investors have priced in expectations that the Federal Reserve will lift the target range for the federal-funds rate by 25 basis points, that would be the second rate hike this year. Companies that featured included Just Eat PLC shares which fell 4.7% after rival Deliveroo late Tuesday outlined expansion plans, including signing up about 5,000 more U.K. restaurants that have opted to use their fleet of food couriers. Dixons Carphone PLC fell 2.8% after the consumer electronics retailer said there was a data breach involving 1.2 million personal records and 5.9 million payment cards. Glencore PLC rose 3.8% after the mining heavyweight unveiled a $5.6 billion restructuring of its troubled Congo copper company, Katanga Mining Ltd. which resolves dispute with Congo’s state-run mining company. The FTSE 100 closed down 0.10 of a point at 7,703.71.

Economic News Expected Today

 USA

Type Period Forecast Previous Importance
Continuing Jobless Claims June 1,737K 1,741K Low
Initial Jobless Claims June 224K 222K Medium
Jobless Claims 4 Week Avg June   225.50K Low
Retail Sales May 0.4% m/m 0.2% m/m High
Core Retail Sales May 0.5% m/m 0.3% m/m High
Export Price Index May 0.3% m/m; 4.4% y/y 0.6% m/m; 3.8% y/y Medium
Import price Index May 0.5% m/m; 3.0% y/y 0.3% m/m; 3.3% y/y Low
Bloomberg Consumer Confidence June   54.8 Low
Business Inventories April 0.3% m/m 0.0% m/m Medium

Economic News Expected Today

EU  Eurozone

Type Period Forecast Previous Importance
CPI (Germany) May 0.5% m/m; 2.2% y/y 0.5% m/m; 2.2% y/y Medium
CPI (France) May 0.4% m/m; 2.0% y/y 0.2% m/m; 2.0% y/y Medium
EU Finance Ministers Meeting (euro zone) June     Medium
Deposit Facility Rate (euro zone) June -0.40% -0.40% High
ECB Marginal Lending Rate (euro zone) June   0.25% High
ECB Interest Rate Decision (euro zone) June 0.00% 0.00% High
ECB Press Conference (euro zone) June     High

Economic News Expected Today

UK United Kingdom

Type Period Forecast Previous Importance
RICS House Price Balance May -5% -5% Medium
Retail Sales May 0.5% m/m; 2.4% y/y 1.6% m/m; 1.4% y/y Medium
Core Retail Sales May 0.3% m/m; 2.5% y/y 1.3% m/m; 1.5% y/y High

Other Global Economic Data Expected

 

Type Period Forecast Previous Importance
MI Inflation Expectations (Australia) May   3.7% Low
Employment Change (Australia) May 18.0K 22.6K High
Full Employment Change (Australia) May   32.7K Medium
Participation Rate (Australia) May 65.6% 65.6% Low
Unemployment Rate (Australia) May 5.5% 5.6% Medium
Industrial Production (China) May 6.9% y/y 7.0% y/y High
Retail Sales (China) May 9.6% y/y 9.4% y/y Low
New Housing Price Index (Canada) April 0.2% m/m 0.0% m/m Medium

Economic News Round Up MarketsWorld Bars

U.S. producer prices rose in May, the Labor Department reported that its producer price index increased 0.5% last month. In the 12 months through May, the PPI rose 3.1%. Forecasts were for the PPI rising 0.3% last month and increasing 2.8% from a year ago. Core PPI increased by 0.3% from a month earlier and rose 2.4% in the 12 months through May. Core PPI was forecast to increase 02% month-on-month and 2.3% on an annualized basis.

Industrial production in the 19 countries sharing the euro currency dropped in April. Eurostat reported that factory output decreased 0.9 percent in the euro zone compared to last month.

Euro zone employment increased by 0.4 percent in the first quarter compared to the final quarter of 2017.

Inflation in the UK held steady at a one year lows in May, further diminishing the chances for a rate hike by the Bank of England in the coming months. The Office for National Statistics reported that the annual rate of inflation rose by 2.4% in May, unchanged from the previous month and in line with expectations. Underlying inflation rose by 2.1% on a year-over-year basis, matching the previous month and also in line with forecasts. Consumer prices rose 0.4% in May, unchanged from a month earlier and in line with forecasts. The retail price index edged down to 3.3% from 3.4% year-on-year.

Forex Round Up MarketsWorld Bars

The dollar slipped lower against a currency basket on Wednesday as investors awaited the conclusion of the Federal Reserve’s two-day policy meeting, where it is expected they will raise interest rates for the second time this year. With a rate hike almost fully priced in market participants will be focusing on whether the central banks plans to speed up the pace of rate hikes this year. The euro pushed higher against the dollar, with EUR/USD up 0.23% at 1.1771 as traders looked ahead to Thursday’s European Central Bank meeting amid speculation that the bank could signal its intention to start unwinding its bond purchasing program. The dollar was little changed against the yen, with USD/JPY at 110.39 after rising to a three week high of 110.72 earlier. The pound was a touch lower against the U.S. dollar, with the GBP/USD easing to 1.3361 after data showing that UK inflation remained steady at a one-year low on May, despite pressure from higher oil prices. The U.S. dollar index was down 0.20% at 93.64.

 
Commodity Round Up MarketsWorld Bars

Gold prices ended higher on Wednesday, then fell below $1,300 an ounce in electronic trading after the U.S. Federal Reserve lifted a key interest rate to a range of 1.75% to 2%. The U.S. Dollar Index gave up earlier weakness following the Fed’s decision. The central bank also signalled that it will raise the cost of borrowing four times this year. August gold was at $1,299.30 an ounce in electronic trading. Prices had risen $1.90 to settle at $1,301.30 an ounce before the Fed announcement. Silver futures rose 0.62% to $16.99.

Crude oil prices settled higher on Wednesday as data showed a massive draw in U.S. crude supplies despite an ongoing expansion in output. Inventories of U.S. crude fell by 4.143 million barrels for the week ended June 8th, well above forecasts for a draw of 1.440 million barrels. The unexpected rise in crude supplies emerged as imports fell, while the widening spread between Brent and WTI crude prices encouraged U.S. exporters to ramp up exports. Crude imports fell 247,000 barrels per day last week to 8.1 million barrels per day, while exports rose 300,000 bpd. A 3% uptick in refinery activity saw product inventories such as gasoline and distillate fall sharply, underpinning the size of the draw in crude supplies. West Texas Intermediate crude futures for July delivery rose 28 cents to settle at $66.64 a barrel. Brent crude gained 75 cents to settle at $76.62 a barrel.

The MarketsWorld Overview MarketsWorld Bars

Expectations from this ECB policy meeting have increased following reports about discussion on the next steps in the Quantitative Easing program, a topic the ECB have refrained from in previous meetings. The current QE program runs through September at a pace of 30 billion euros per month. Markets expect further bond buying at the three remaining months of the year, albeit at a slower pace, before purchases come to an end. An initial rate hike is projected for mid-2019. The ECB could announce the reduction and end of bond buying. A clear commitment from the ECB to end QE with an end date could give the euro a boost, while a more vague statement about future moves could weigh on it. If Draghi only says that a discussion was held but does not make any announcements, the drop could be sharper.

 

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The information contained in this publication is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Any opinion offered herein reflects Barry Jenkins’ (MarketsWorld Analyst) current judgment and may change without notice. Users acknowledge and agree to the fact that, by its very nature, any investment in shares, stock options and similar and assimilated products is characterized by a certain degree of uncertainty and that, consequently, any investment of this nature involves risks for which the user is solely responsible and liable. This message is intended for recipient only and not for further distribution without the consent of MarketsWorld.

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