Fed forecasts strong growth, brushes aside inflation concerns

Thursday, June 19, 2014

US equities rallied higher yesterday as the FOMC left the Fed funds rate unchanged as expected as well as tapering another $10bn off asset purchases this month. Both the S&P 500 and DJIA closed higher for the fourth straight session with the S&P 500 closing at a new all-time high as risk appetite increased. Market participants were encouraged by comments made by Fed chair Janet Yellen who pledged to provide monetary stimulus for as long as necessary. Concerns regarding rising inflation and asset price bubbles were brushed aside as Fed officials released a forecast which outlined the possibility of interest rates rising at the beginning of next year, much faster than previously expected. On the macro data front, initial weekly jobless claims, the Philly Fed index and the Leading index are all due out later today with the Markit manufacturing PMI reading to look forward to at the start of next week which participants hope will add further clarity to the currently mixed outlook for economic recovery. According to a Bloomberg survey, initial jobless claims are expected to show a modest decline w/w from 317K to 313K for the week ending June 14th while the Philly Fed index is expected to decline by 1.4 points in June to a reading of 14.0.

Asian equities outside of China posted steady gains as the positive sentiment carried over from the US session. Japanese equities rallied substantially higher with the Nikkei 225 adding 1.62% and the TOPIX closing 1.59% higher. The yen strengthened against the dollar for the second session, dropping towards 101.75 in early trade as gains in the dollar were limited by falling US treasury yields. The benchmark 10 year US government bond yield fell steadily throughout the day from 2.658% as it settled to a close below 2.6%. Yields this morning have drifted lower and are currently testing previous support towards 2.573%.

Front month WTI prices shed 0.6% yesterday ahead of the release of EIA crude oil inventory statistics. Prices have drifted lower throughout the first half of the week after tracking Brent futures higher on the conflict in Iraq as market participants viewed the contract as overvalued. Prices this morning are trading slightly higher as crude stockpiles were drawn down 579K barrels w/w but remain within yesterday’s trading range and are currently facing tentative resistance around Wednesday’s opening price towards $106.50/bbl. Front month Brent futures closed higher for the third straight session yesterday as attacks on Iraq’s largest refinery increased speculation of major disruptions to crude output in the near term. After a brief session of consolidation back towards $113.30/bbl, as support for moves above $114.70/bbl faltered, Brent prices have rallied higher in the last three sessions and have built on support at the previous session’s close, testing recent highs around $114.70/bbl. 

S&P 500 pushes to new record high

SPX Index SP 500 Index 2014 06 19 07 50 02 

10 year treasury yields fall sharply on Fed outlook

USGG10YR Index US Generic Govt 2014 06 19 08 02 13 

Brent futures rally higher on continued unrest in Iraq

CO1 Comdty Generic 1St CO Fut 2014 06 19 08 12 38

Events for today




Retail Sales




Jobless Claims




Philly Fed




EIA Nat Gas


Jul  Crude WTI (NYMEX)


Jul  Coffee (LIFFE)


Jul  Coffee (NYBOT) 


All times UK Local Time

Topics: Crude oil, Brent, WTI, JPY
More from: Kash Kamal