(March 06, 2017)
Global Stocks Lower on Geopolitics, French Election Worries
European markets are lower following a mixed session in Asia, which was interrupted by news that North Korea had test fired several missiles. Markets are also bracing for a Fed rate hike at next week’s FOMC meeting.
Bund and Gilt futures finished last week on a mixed footing, with Bunds underperforming, after a French poll showing Macron overtaking Le Pen in the voting intentions for the first round of the April presidential election.
Traders await for the second half of the week as the ECB meeting and non farm payrolls data can clarify economic status.
US Dollar Steady on Rate Hike Expectations
The Dollar Spot Index sitting up 0.11% at 101.46, the direction of the majors are likely to be influenced more by political noise than macroeconomics, news from France on election candidates and noise from the Oval office on wiretappings and N.Korea there for the markets to consider.
The markets adjust the increase of March rate hike probability at 79.7% post Janet Yellen comments on last Friday.
Gold Prices Recover amid Political Concerns
Gold futures are trading higher on Monday session. The move is being fueled by profit-taking and position squaring. The catalyst behind the early strength is the weaker U.S. Dollar.
The dollar started to weaken on Friday after Fed Chair Janet Yellen dropped a strong hint that the Fed was likely to raise interest rates at its next meeting on March 15. Sellers had been pressuring gold all week in anticipation of a rate hike and are likely using Yellen’s comments as an excuse to book profits.
Traders may react to the news that North Korean fired four ballistic missiles if it turns into a major event. Gold investors are also worried about the latest developments over the French presidential elections.
Oil Slips as China Growth Weigh on Demand
Oil futures are trading lower shortly before the cash market opening. The market is trading inside Friday’s range and both are trading inside Thursday’s wide range.
Traders appear to be waiting for news. They seem to have accepted that increased U.S. production is more or less off-setting OPEC’s planned output cuts. The wildcards this week are the U.S. Dollar and Russia.
Support for crude oil could continue to erode if the dollar continues to strengthen along with the increases in the chances of Fed rate hikes in June and September. Based on Fed Chair Janet Yellen’s comments on Friday, it looks as if a March hike is a done deal. It’s the frequency of additional cuts that is going to move this market.
Activity out of Russia should be watched closely because it was singled out last week as a country that was not living up to its pledge to cut production by 300,000 barrels per day. So far it has complied by slashing 100,000 bpd. If they announce additional production cuts then prices could spike to the upside.
In news overnight, traders raised concerns over the possibility that China may cut growth targets – another factors to drag on demand.