Markets Steady Ahead of Fed Minutes, Volatility Looming
Commodity and foreign currency markets were mixed on Wednesday after the release of the July U.S. consumer inflation report and the latest minutes from the Federal Reserve. According to the U.S. Labor Department, the Consumer Price Index rose 0.1 percent in July versus the expected 0.2 percent increase. The department added that core CPI also rose 0.1 percent.
At 2:00 p.m. the Fed will release the minutes from its last monetary policy meeting in July. Traders want guidance as to the timing of the first Fed rate hike since 2006. This report will be more important than usual so investors should expect increased volatility.
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Traders will be watching to see if the Fed discussed the importance of inflation in its decision process, and whether it needs to reach the 2% mandate. Secondly, traders want to know if international events in Greece and China will cause any delays. (Keep in mind that the meeting took place before the People’s Bank of China’s devaluation last week.) Thirdly, investors will be looking for more conclusive evidence that members are leaning towards a September rate hike.
The U.S. Dollar traded flat to lower after the release of the CPI data. This helped boost December Comex Gold prices. For the most part, however, gold remained range bound, but with a slight upside bias.
October Crude Oil fell to a 6 ½ year low after the U.S. Energy Information Administration reported a 2.6 million barrel build in inventories. Traders and analysts were looking for a 600,000 barrel drawdown. Crude stocks at the Cushing, Oklahoma delivery hub rose by 326,000 barrels. U.S. imports also rose last week by 465,000 barrels per day.
The EUR/USD and GBP/USD were under pressure on light volume on position-squaring ahead of the Fed minutes. In other news, German lawmakers approved Greece’s latest bailout program. On Wednesday, the U.K. will release its latest retail sales figures.
Look for increased volatility following the release of the Fed minutes at 2:00 p.m. ET. Hawkish words will be supportive for the U.S. Dollar. This should pressure the Euro, British Pound and Gold. Dovish comments should be supportive for commodities and foreign currencies with the exception of crude oil which is following its own bearish fundamentals.