- US core durable order should come strong and support the equity market
- Dovish FOMC ignites rally for euro and sterling
- European markets swing up and down due to earning results
US futures are trading higher ahead of the US core durable good order data. By looking at the US ISM’s new order index and factory output, we expect the number to be strong today. The is the last set of important economic number before we get the US advance GDP q/q reading which is due tomorrow. The bar is set higher for the US core durable number as the forecast is for 0.4% while the previous reading was at 0.3%.
Investors in European markets are not that thrilled about today’s earnings outcome and swinging between gains and losses. Both; Deutsche Bank and Royal Dutch Shell, surprised the markets with their numbers. It was refining and chemical business for Shell which really helped their top line number as the oil price itself is still not strong enough. Deutsche bank reported strong profits and the second quarter profit came well ahead of the Street estimate. However the CEO of the Bank brought attention to the fact that the revenue across the group still needs more work. Facebook also made a lot of noise last after the bell yesterday by beating the revenue and with a strong forecast.
Sterling and Euro are the most flashing currencies. The euro has smashed its two year resistance and Sterling is trading near the highest level since September. Before we dive into the common denominator which has produced this move, it is vital to mention that the fresh hawkish comments by Ewald Nowotny, the ECB committee member, who said it is time to slowly go off on gas, have also helped the currency. But the main catalyst behind these strong moves is the dovish statement by the Fed.
The statement was relatively dovish despite the fact that the Fed did mention that scaling down of the balance sheet would happen soon. The statement failed to produce any life in the volatility index and it touched another low. It is central banks around the world which pushed the volatility this low. The Fed fund rate is now pricing only a 45% chance for another rate hike for this year. The main reason is that the inflation is so low and markets do not believe that the Fed will increase the interest again this year. However, this could change rapidly because all it takes is just a couple of strong economic readings and these Fed fund rates will show a completely different percentage.
