US stocks rally on dovish Fed minutes

Thursday, October 09, 2014

US stocks rallied strongly yesterday as details from September’s FOMC meeting minutes offered further insight into forward guidance and calmed market fears of a fast approaching interest rate rise. Both the S&P 500 and DJIA experienced strong buying activity towards the afternoon of the US session, rallying 1.75% and 1.64% higher respectively as the Fed pledged to keep rates low for a “considerable time” after its asset purchasing programme comes to an end in October. The minutes also indicated that policymakers expected US growth to be slower than expected if foreign economic growth continued to weaken as markets expected a more hawkish outlook in the September meeting.

The dovish undertones saw the dollar index extend losses for a third straight session yesterday, closing below 85.30 for the first time in almost two weeks. After gaining 8.8% since the beginning of July in a rally lasting three months the dollar index has shed over 1.6% this week against a basket of major currencies which offered further upside support to US equities. Volatility in the S&P 500 represented by the VIX fell 12% yesterday in the biggest one day drop since July, erasing Tuesday’s 11% spike higher as jittery investors sold out of benchmark indices ahead of the release of the minutes.

Spot gold prices rallied higher for a third straight session yesterday as a weaker USD supported prices 1.0% higher to a close just above $1,221/oz. Buying activity overnight and early this morning has seen the yellow metal extend gains further towards $1,228/oz as Fed officials highlighted the risks that the US economy faces from slowing global growth. The increase in haven demand builds on the revised forecasts to global growth from the IMF, which cut its global outlook for 2014 by 0.1% to 3.3%. Provided gains hold steady, gold prices are on track to add just over 3.0% this week in its best week since June.

Brent futures slid to a fresh low on Wednesday on fundamental concerns as rising global supply and sluggish demand growth ensured the global benchmark remained under pressure. Intraday dips saw losses extend towards $90.57/bbl before recovering slightly to end the session at $91.38/bbl. Saudi Arabia in the past has been the swing producer, cutting output when supplies are high and ramping up production when disruptions occur. However, the OPEC member has so far been reluctant to cut output, instead cutting offer prices to Asia in a bid to capture more market share. Adding to this, Russian output climbed to 10.61m bpd in September according to initial data from CDU-TEK, part of the energy ministry bringing cumulative losses for front month Brent futures to just over 21% since the June peak. With supply indicators showing no slowdown in output Brent may be under pressure for some time.

S&P 500 rallies higher as VIX drops 12%

SPX Index SP 500 Index SPVIX 2014 10 09 07 43 27

DXY heads lower for a third straigh session

DXY Curncy DOLLAR INDEX SPOT 2014 10 09 07 39 24

Brent futures fall to fresh low on supply concerns

CO1 Comdty Generic 1St CO Fut 2014 10 09 07 57 22

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Topics: Gold, Crude oil, Brent, DXY
More from: Kash Kamal