Global equity bulls were instilled with a renewed sense of inspiration on Thursday after dovish remarks from Federal Reserve Chair Jerome Powell boosted risk appetite.
Asian stocks closed mostly higher amid the positive market mood with European shares currently taking their cue from the rally in Asia. Powell’s surprise dovish comments are likely to offer investors a short-term distraction ahead of the highly anticipated G20 summit. However, overall market sentiment continues to hang on the outcome of trade talks between President Trump and his Chinese counterpart President Xi.
Although a US-China trade deal breakthrough seems quite unlikely, any sign of both sides expressing some interest for further discussion could be a welcome development for financial markets.
Dollar dethroned by Powell
The Dollar was booted off its throne on Wednesday evening after dovish comments from Powell prompted investors to re-evaluate rate hike expectations.
Powell’s statement that interest rates are “just below” the neutral range came as a surprise which immediately fueled speculation of the Fed taking a pause in interest rate hikes next year. With investors likely to scale back on US rate hike expectations beyond December, this is good news for global stocks but very bad news for King Dollar. It is worth noting that one of the primary drivers behind the Dollar’s incredible appreciation in recent months was speculation of higher rates. Dollar bulls could be running out of steam as Investors are expecting only one more interest rate increase in 2019, as opposed to the three predicted by the Fed’s projection in September.
Attention will be directed towards the minutes from the Fed’s November meeting which will most likely reinforce expectations of a rate hike in December. Market players will be looking for additional clues on the Fed’s rate hiking path for 2019. If the minutes are presented with a similar dovish tone as Powell’s speech, the Dollar could be in trouble.
Another day, another yearly low for Oil
Oil prices quietly depreciated to a fresh yearly low on Thursday as investors re-assessed OPEC’s ability to decisively cut production to eliminate excess supply in global markets.
Comments from Russian President Vladimir Putin stating how Russia is comfortable with the current level of Oil prices at around $60 compounded downside pressures with Brent Crude trading around $58.00 as of time of writing. With fears over excessive supply and worries about falling demand the primary themes weighing on Oil markets, the outlook for Brent Crude and WTI remains bearish.
Gold shines as Dollar weakens
Gold is shining proudly today as the Dollar continues to weaken on Powell’s dovish remarks.
The price action seen today simply highlights how Gold’s direction remains dictated by the Dollar’s performance and speculation around US interest rates. With the Dollar possibly weakening further in the near term, the yellow metal has the potential to break above the $1,228 resistance level. A daily close above this point may encourage an incline towards $1,240.
