Bullet Report: Focus turns to ECB QE decision tomorrow

Today will probably continue in yesterday’s quiet mode ahead of the ECB meeting tomorrow. Notably, the markets are pricing in a rate hike in 2018 with an 80% probability. The USD gained yesterday against majors. Today’s main event is the Bank of Canada Rate Decision.

Currencies: Although mostly stable, the dollar managed to stage a slight comeback yesterday. The EUR plunged to a 20-month low on Monday (1.0505) but quickly managed to post a 3 week high of 1.0797 on the same day as market participants concerns were eased in regards to the Italian PM resignation. Overnight, the AUDUSD dropped 0.5% after GDP data showed that the country’s economy dropped for the first time since 2011. Against the CAD, the USD managed to strengthen for the first time in 3 days on the back of weaker oil prices. The CAD surged to a 6 week high of 1.3236 on Monday as oil prices surged after OPEC stroked a deal to cut output last week. Today’s BOC rate decision will be key to the CAD’s direction.

Stocks: Dow Jones closed at another record high at 19251.78 overnight, up 35.54 pts, or 0.18%. S&P 500 also ended up 7.52 pts, or 0.34%, at 2212.23, just shy of record close at 2213.35. Shares in Asia Pacific also rose as Nikkei closed 0.5% higher while Australia, despite the negative GDP data managed to close at +0.83%. In Europe, it is noteworthy to say that the German DAX has managed to break its long term resistance level of 10800, posting 10860 highs, a level not seen since 12 months.

Oil and Gold: Oil gave back some of its recent gains, with WTI falling 2.1% to $50.7 per barrel. A Bloomberg report suggesting output from OPEC would reach a record high in November also cast a negative tone over the market. The focus now shifts to the meeting with non-OPEC producers on Wednesday to discuss further cuts to production. While Russia has promised to cut output by 300kb/d, there is a growing feeling in the market that it may need to cut even further to reach the 600kb/d target that OPEC wishes to achieve. Overnight, gold prices dropped to levels approximately 12% from November highs as a stronger USD and a widely expected Fed rate hike next week combine to tamp down interest in the precious metal.

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