Macro economics

Analytics on 10/06/2020. FOMC decision, US CPI data will set further tone for markets

Following mixed trading in Asia, European stock markets opened higher on Wednesday but failed to preserve the upside impetus and turned negative ahead of the outcome of the U.S. Federal Reserve’s latest policy meeting and economic forecasts. Despite the central bank is not expected to make any major policy changes, market participants will be watching for hints on how long its current policy will remain in place.

On the data front, China’s producer price index for May fell 3.7% from a year earlier, a larger decline than the 3.3% fall expected while consumer price index rose 2.4% year on year last month, less than a 2.7% increase expected. In its latest forecast update, the OECD estimates a 6% slump in the global economy while a 7.6% fall in the global economy is possible if there is a second wave of the coronavirus outbreak. On the positive side, the EU is set to propose lifting external travel restrictions from 1 July onward while Germany confirmed that border controls with Switzerland, France, Austria, and Denmark will end on 15 June.

Against this backdrop, the UK’s FTSE 100 sheds 0.48% to 6,305. Italy’s FTSE MIB edges lower by 0.98 percent to 19,734, France’s CAC 40 loses 0.61 percent to 5,064, while German DAX 30 declines by 0.86 percent to 12,509. U.S. stock index futures are falling in early trading, with Dow losing 300 points, snapping a six-day winning streak ahead of the Federal Reserve decision and US CPI data due later today.

In currencies, the greenback is back under the selling pressure as traders exit long positions ahead of the announcement by the Fed. EURUSD derived support from the 1.1240 yesterday and bounced higher, trading not far from the recent three-month highs. If the Federal Reserve and inflation data disappoint USD bulls, the euro may try to challenge the 1.14 barrier by the end of the day. For now, its bullishness is capped by the prevailing risk aversion across the financial markets.

In other markets, Brent crude struggles to regain the upside momentum since rejection from three-month highs above $43. On Wednesday, the prices are holding above the $40 handle but could turn this level into resistance again if risk sentiment continues to deteriorate. Later today, the oil market will be affected by the EIA weekly report. If the numbers are bearish like the API data revealed overnight, the futures may finish the day below the mentioned key level. <./p>

Nathan Lambert, Head of Global FX Analytical Department

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Interest rates

Country Rate Value
USA Federal Funds 0,25 %
Switzerland 3 Month LIBOR Range -0.75 %
United Kingdom Repo Rate 0,10 %
EU Refinancing Tender 0,00 %
Japan Overnight Call Rate -0,10 %
New Zealand Official Cash Rate 0,25 %
Australia Cash Rate 0,25 %
Canada Overnight Rate Target 0,25 %
All rates

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