Markets await pre-Thanksgiving data dump
Asian stocks are mixed and US equity futures are little changed, while the benchmark dollar index is holding around its highest level since July 2020. The strong greenback has dragged gold prices back below the psychologically important $1800 mark.
Market participants are fixated on the outlook for US interest rates, with Fed Funds futures now pointing to three hikes in 2022, with the first one priced in the June FOMC meeting. That’s a more aggressive policy tightening cycle compared to what was being priced in just after the September meeting, when the futures market and six FOMC members expected just one rate hike next year.
Near-term market sentiment is set to be dominated by the obsession over how persistently higher inflation could affect the timing of the Fed’s policy adjustments, and this will frame today’s release of the November FOMC meeting minutes. Fresh hawkish signals could push the dollar and yields higher, in turn potentially prompting tech stocks and gold to shed more of their gains from recent months.
It appears that markets are already pre-empting potential outcomes from the December FOMC meeting, with traders believing they may see the Fed signal a faster pace to the ongoing tapering, or a more hawkish shift on the Fed’s dot plot; perhaps even both. Still, such expectations would have to be supported by the data, with global investors set to digest a slew of US economic releases later today. This pre-Thanksgiving data deluge, which includes the core PCE data, US durable goods and weekly initial claims, could also trigger more volatility across various asset classes, as markets shift their expectations in line with the latest readings on the US economy.
Oil extends rebound on underwhelming strategic reserves release
Brent and WTI futures are building on Tuesday’s surge, with oil bulls taking comfort in the lower-than-expected number of barrels being released from strategic reserves of major economies, including the US, China and India. Prices could get another boost later Wednesday if the EIA confirms a larger-than-expected drawdown in US inventories, though the whisper number points to a meeker 669k barrel drop in contrast to the 1.8million barrel median estimate.
The bigger risk event for oil markets could be next week’s OPEC+ meeting, and whether prices can mount another charge towards the multi-year highs seen in late October. Oil bulls could be on the rampage if OPEC+ responds to this coordinated release of reserves by halting its own plans for restoring output. Such a move would also dent expectations for markets to shift back into oversupplied conditions by next quarter, which would buffer support for prices as well.