The latest minutes from the Federal Reserve left market participants puzzled as monetary policy makers remained divided over when to move interest rates. As a result, the dollar was sold heavily against its major peers, falling more than 1% against the euro, pound and yen for the week.
Although speeches last week from Fed Presidents John Williams, William Dudley and Dennis Lockhart all indicated a possible rate hike by September, futures markets are only pricing a 12% likelihood for a hike next month and less than 50% chance for December.
Will Yellen give the green light?
Markets are clearly saying to Fed officials we don’t believe you guys, and unless your boss says it out clearly, do not expect your words to be taken seriously.
Well, this time markets will have the chance to hear from Chair Janet Yellen when central bankers from around the world gather for an annual meeting in Jackson Hole, Wyoming on Thursday. Many investors hope her speech on Friday will provide more clarity on the Fed’s next move, however we don’t expect much on the timing. She would likely focus on the bigger picture as the topic suggests “designing resilient monetary frameworks for the future” which could be interpreted as a dovish message, and keep the greenback under some pressure.
On the U.S. data front, new and existing home sales are scheduled for release along with orders for durable goods, Markit’s PMI surveys, consumers’ sentiment and second GDP reading.
Oil: From a bear to bull market territory in just 11 trading days
Oil has been the most interesting trade so far this month. After Brent fell into a bear market territory on Aug-2 (dropping by more than 20% from it’s recent highs), it took traders 11 trading days to swing it back into a bull market territory with prices closing above $50 for the first time since July-4.
Although we were bullish on Oil when prices approached $40 at the beginning of August, I think the rally in such a short time frame has been really overstretched. A $9 advance in three weeks cannot be justified when looking at fundamental and betting solely on OPEC members to reach a deal on freezing production might disappoint.
Last week showed that U.S. oil drillers continued to bring more rigs online, with 10 added to reach 406. This is the longest recovery in more than two years and suggests the decline in U.S. production is close to an end.
I believe that bears are ready to attack at any time now, so any further gains could be seen as an opportunity to go short.