Will the Fed Talk the Talk?
• The FOMC meeting is the main focus today. Three questions will be answered. Will it confirm it has begun talking about tapering? Does the median forecast now look for the first hike in 2023? Will the Fed make a technical adjustment to interest it pays on reserves or the reverse repo to prevent the Fed funds from falling closer to the zero-bound?
• Chinese data was softer than expected but does not signal that the recovery is faltering. Separately, new efforts are being taken to curb some industrial metal prices.
• A sharp drop in API’s estimate of US oil inventories helped lift crude to new three-year highs.
• UK CPI and PPI were firmer than expected.
• Biden and Putin meet, but it is more about politics than economics.
• The market expects the central bank of Brazil to deliver its third 75 bp hike of the year, which would lift the Selic rate to 4.25% amid rising price pressures.
With the outcome of the FOMC meeting awaited, the dollar is narrowly mixed in quiet turnover. The Scandis are the weakest (~-0.3%) among the majors, while the Antipodeans are the strongest (~+0.25%). JP Morgan’s Emerging Market Currency Index is snapping a three-day decline.
Equity markets are mixed, with the MSCI Asia Pacific Index succumbing to profit-taking after a four-day rally. Europe’s Dow Jones Stoxx 600 is edging higher for the ninth consecutive session, setting new record highs along the way. US futures indices are little changed.
The US 10-year yield is hovering just below 1.50%, and European yields are slightly softer.
Gold is straddling the $1860 area while trading inside yesterday’s range, which was within Monday’s range. A large drawdown of US inventories (~8.5 mln barrels) is keeping oil prices firm today. The July WTI contract is mostly trading between $72.20 and $72.80 a barrel. Industrial commodities are trading heavily, though the price of lumber rose yesterday for only the second time since May 21.
Bannockburn Global Forex