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July 7, 2016

FOMC minutes had little effect on markets, crude prices retreat.

FOMC minutes had little effect on markets, crude prices retreat.

US financial policymakers decided that the key interest rate should remain unchanged until situation clears up with the British decision to withdraw from the European Union shows Minutes of FOMC 15-16 June meeting released yesterday.
The members of FED board agreed that before estimating the possibility of another step towards a policy tightening it would be wise to get more data on the impact of a vote in the United Kingdom, said the FED in the report.
FED also cited a sharp slowdown in hiring in US companies as one of the reasons why the rate has remained in the range of 0.25-0.50 percent.
Brexit shocked investors and politicians, increasing nervousness of markets around the world, partly because the coordination of new financial, trade and immigration policies of Britain and the EU can take years.
The situation in global financial markets has become more tense even without action by the FED and boosted dollar will put pressure on American exporters.
Prior to the referendum US Federal Reserve hinted that two interest rate increases in the current year will be enough to save the United States economy from overheating. But after the vote, several participants of the FED risk-setting process called for a cautious approach in the face of increased uncertainty.
It is clear from the minutes of the June meeting that many FED heads participating in the discussions considered a sharp deceleration of employment in May as a statistical “noise”, and most expressed the view that the economy is ready to raise rates if a financial or economic shock will not push the United States off course.
Reaction on majors – GBP/USD and EUR/USD suggests that the wary stance of FED was priced in:

 

Screen Shot 2016-07-07 at 1.02.38 PM

 

 

But bearish sentiments on pound triggered yet another selloff:
Screen Shot 2016-07-07 at 1.08.18 PM

The growth of crude prices was backed by data on reducing commercial crude stockpiles in the United States as well as the weakness of the dollar, but a persisting and concerns about economic growth continues to keep the markets under pressure.
Brent futures rose 1.24% to $ 49.40 per barrel, american futures WTI went up by 1.22% stalling near 48 level. The drop in reserves has possibly become the main cause of rising prices.
According to the American Petroleum Institute (API) crude oil reserves fell by 6.7 million barrels to 520.9 million for the week ending July 1, showing a decline for the seventh week in a row. Analysts also referred the strengthening of oil prices to the greenback declines. Meanwhile, the economic slowdown and a global oil surplus keep prices from the growth. Some market participants are concerned about declining demand in Asia, explaining it not as seasonal factors, but probably structural changes.

 

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