- U.S. pending home sales up 5.5% vs. 2.3% forecast in Feb
- U.S. crude oil inventories up 0.9M barrels vs. estimate of 1.2M barrels
- FOMC member Evans: Supports one or two more rate hikes this year
- Evans: Four rate hikes this year would need much better fundamentals
- Fed official Rosengren: Favors a rate hike every other meeting
- Rosengren: Time to think about normalizing more quickly
- Fed official Williams: More than three rate hikes possible this year
Most dollar pairs were stuck in consolidation mode as traders were biting their nails while watching the Brexit happenings but Black Crack was able to sneak in some gains with the latest inventory report.
Lower than expected increase in oil stockpiles – After the previous week’s sharp increase of 5 million barrels in crude oil stockpiles, the Energy Information Administration reported a smaller than expected buildup of 0.9 million barrels versus the consensus at 1.2 million barrels.
This followed the update from the American Petroleum Institute, which also printed a slightly lower than expected gain of 1.91 million barrels compared to the estimate at 2 million barrels. WTI crude oil ticked higher to $49.50 per barrel, up more than 2% for the trading session.
These easing concerns about a market oversupply also comes after reports of armed protests putting a dent on Libya’s Shahara oil production in Zawiya terminal and condensate loadings from Mellitah terminal. Note that Libya has been exempted from the OPEC output deal to give the nation’s energy sector a chance to get back on its feet, but the recent force majeure is estimated to shave off around 250K barrels per day in production.
Hawkish Fed remarks – Another batch of Fed officials stepped up to the podium to give testimonies in the latest New York session, but their upbeat remarks weren’t really new to the markets.
FOMC voting member Charles Evans mentioned that he could reasonably support one or two more interest rate hikes this year, citing that a fourth hike would be pushing the envelope since it would require much stronger fundamentals. He acknowledged that the U.S. economy is making good progress towards achieving the Fed’s goals of full employment and 2% inflation, adding that there are upside risks to growth.
Evans also said that it would be better to see stronger labor participation numbers but warned that tax reform from the Trump administration might not be enough to solve low productivity. He also said that there is a degree of uncertainty when it comes to fiscal policy but sounded optimistic that these would eventually boost growth.
As for Fed official Rosengren, it’s time for the central bank to consider tightening at a faster pace. He explained that the economy is practically at full employment and that there’s strong evidence that wages could keep going up. He even admitted that he’s one of the fellas who are projecting four interest rate hikes this year, citing that he’d support a tightening move every other Fed meeting. However, Rosengren isn’t one of the voting members this year.
Fed official Williams, who is also not a voting member, also mentioned that more than three hikes could be in the cards for 2017 and that the U.S. economy could sustain its momentum in growing at a healthy pace even with higher borrowing costs. He projects that the jobless rate will bottom out at 4.5% by the end of the year and that the 2% inflation target will be reached.
Major Market Movers:
CAD – The oil-related Loonie made a bit of a recovery on easing fears of oversupply in the crude oil market.
USD/CAD fell from a high of 1.3392 to a low of 1.3323, CAD/JPY popped up from a low of 82.75 to a high of 83.36, EUR/CAD is down from 1.4415 to a low of 1.4332, and GBP/CAD slid back below the 1.6600 handle.
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