Fed rate speculations sent US equities lower over night with DJIA losing -91.22 pts, or -0.52% to close at 17435.4. The close below 17435.4 key near term support carries bearish implications and we might see the index now head to 17000 handle next. S&P 500 also lost -7.59pts, or -0.37%, to close at 2040.04, down for 2016. Asian equities, however, opened lower and quickly rebounded. Crude oil's retreat to 46.73 yesterday was also brief as it's now back at 48.75 but we'll be cautious on selling pressure ahead of 50 handle again. Gold stays soft due to strength in Dollar and is hovering around 1250. Dollar index is holding firm above 95.19 key near term resistance and more upside is anticipated. In the currency markets, while the greenback is strong, it's overall whelmed by Sterling which jumped on receding Brexit fear. Swiss Franc and Yen are the weakest ones.
The speculation of Fed June hike continued. New York Fed president Dudley joined the chorus of hawkish Fedspeaks yesterday and said that the US economy could warrant a June or July hike. He said that the US is "on track to satisfy a lot of the conditions". And, "if I am convinced that my own forecast is sort of on track, then I think a tightening in the summer, the June-July time frame is a reasonable expectation." But he pointed out that the EU referendum in UK, which is scheduled after next FOMC meeting, is a risk for policymakers to consider. And, "we'll have to think about that in terms of... whether it makes sense to go in June or wait a little bit later." Fed fund futures are pricing in 30% chance of June hike comparing to 4% earlier this week. And, they're pricing in 52% chance of hike by July.
ECB minutes for the April 21 meeting failed to surprise. The members were disappointed that inflation expectations had remained low despite stabilization of the commodity markets. The economy expanded at 'a moderate, but steady, pace' during the intermeeting period. However, the central bank reiterated that 'risks to the growth outlook were still tilted to the downside, while having moderated somewhat'. Regarding recent criticisms by some Eurozone governments over ECB's policy decisions, policymakers generally agreed that 'there was a need to counter the perception that monetary policy could no longer contribute to a return of inflation' and they believed it is 'important to reaffirm collectively the independence of the ECB in the pursuit of its mandate'. The central bank reaffirmed the focus now on is on implementing latest measures and purchases of corporate bonds would likely begin in June. More in ECB Worries About Weak Inflation Expectations, Defends Independence.
BoJ governor Haruhiko Kuroda said yesterday that "be it exchange rates or anything, if it has negative effects on our efforts to achieve our price-stability target, and from that perspective if we figure that action is necessary, we will undertake additional easing measures." BoJ is currently monitoring the impact of negative interest rate on the economy but "this doesn't mean that we will sit idly by until trickle-down effects become clear." Kuroda also cited EU referendum in UK as a risk for the Japanese economy.
On the data front, UK CBI trends total orders is the only data to be released in European session. Canada will release retail sales and CPI later in the day. US will release existing home sales.