Consumers Confident, OPEC Not

Daily Analysis - 28/09/2016

US Equities Markets Higher on Positive Data

Major US equity benchmarks climbed on Tuesday following a host of better than anticipated economic reports. The Dow Jones Industrial Average gained 0.70% to 18,228.30, and the wider S&P 500 index rose 0.60% to end the cash equity session at 2,159.93 followed by the 0.90% gain in the Nasdaq Composite to finish at 5,305.71.

Upside Equity Momentum Persists

The latest momentum higher in equities accompanied data showing US consumer confidence for September rose to 104.1, the highest reading since August of 2007. Additionally, the Markit Flash Services PMI for September rose to 51.9 from 51.0 last month. However, the pace of housing price increases decelerated modestly to a 5.00% annualized pace according to the Case-Shiller home price index. The rise in stocks was also helped by most bulls refusing to book their profits from Monday as the markets continued to rejoice at the prospect of a Clinton presidency. Gains were capped, especially in the financial sector, as investors wondered if the ongoing troubles at Deutsche Bank would turn into a Lehman-like scenario.The focus will be on durable goods data along with Chairwoman Janet Yellen who is scheduled to appear before the House Financial Services Committee later.

Dissenting Voices Re-emerge Within Fed

The Federal Reserve’s refusal to hike rates during the just concluded monetary policy decision received a fresh round of criticism after a top Fed official warned the Central Bank was risking doing more harm to the economy by its continued inaction. “It is getting harder and harder to justify interest rates being so incredibly low given where the U.S. economy is and where it is going,” San Francisco Fed President John Williams said yesterday. "I would support an interest rate increase," he added. Notably, Williams is not a voting member of this year’s policy setting committee, however, his comments seem to echo criticism from the Republican presidential candidate. Yellen was personally attacked during the latest debate by GOP candidate Donald Trump, who alleged that the Fed's decision to hold on to low interest rates was political.

OPEC A Victim of Geopolitical Complexities

As OPEC and Russia meet on Wednesday to discuss the prospect of a freeze on production, the outlook is not too bright. Most analysts reckon that the long-standing rivalry between Middle East heavyweights Saudi Arabia and Iran will likely prevent an accord from being reached. Following conflicting signals from various major producers in the weeks leading up to the Algeria gathering, Saudi energy minister Khalid al-Falih finally dashed any hopes of a deal on Tuesday when he said differences between OPEC members were still wide enough to negotiate an immediate agreement. Crude oil prices were flat in early trade Asian after falling in the previous session. West Texas Intermediate futures were trading around $44.92 a barrel, while Brent hovered close to $46.33 a barrel on Wednesday.

Dollar Shows Strength Versus Yen

After issuing the Comprehensive Review the prior week alongside guidance about yield targeting, the Bank of Japan continues to fall short of goals. The latest moves in the yield curve indicate that the curve itself is flattening, the exact opposite of what the Central Bank was attempting to accomplish. Nevertheless, the US dollar has gained ground against the Yen on Wednesday amid buying from Japanese market participants ahead of their September 30 interim book closing for the fiscal year. Furthermore, the slew of upbeat macro data released in the US has also added to dollar momentum higher. The USDJPY pair touched an intraday high of 100.79 before pulling back in the absence of any fresh catalysts to spur momentum to the upside. So far, USDJPY refused to break below the 100.00 mark, even in the face of the recent central bank uncertainty.