Markets eagerly await key events starting with the FOMC

Summary:

• Oil drops sharply after inventory build

• US inflation metric ticks above 2% Y/Y

• US stocks close to ATHs ahead of FOMC decision (7PM GMT)

• GBP recovers with GE tomorrow 

The weekly crude oil inventory release from the EIA has caused some selling in the energy complex with both Oil and Oil.WTI tumbling lower since the data. The report came in as follows:

• EIA inventories: +0.8M vs -2.9M exp. -4.9M prior. API: +1.4M

• Gasoline: +5.4M vs +2.6M exp

• Distillates: +4.1M vs +2.0M exp

• Production: 12.8Mbpd vs 12.9Mbpd prior

While the headline figure shows an unexpected rise compared to the consensus forecast, it was in fact lower than last night’s API equivalent and in itself therefore isn’t too bearish for Oil. The main negative aspect of this report comes from the large builds in both the Gasoline and Distillates components, but you could say some of the edge is taken off this by a drop of 100k in US production.

Oil dropped as much as 90 ticks in the minutes that followed the release but it has since attracted buyers and seen a bit of a bounce to recoup around half of the declines by the European close where it traded at $63.50. 

The main scheduled event of the day by a distance for US markets is this evening FOMC rate decision (7PM GMT) but before that there has been some noteworthy data on inflation from November released:

• CPI Y/Y: +2.1% vs +2.0% exp. +1.8% prior

• CPI ex food and energy Y/Y: +2.3% vs +2.3% exp. +2.3% prior

The headline reading here has moved up more than expected and back above the 2% level once more. Given the year on year nature of this data, there could be further gains to come with the next couple of months seeing additional low readings from December 2018 and January 2019 roll out of the current year and into the base.

The US500 continues to be well supported and trading just over 0.5% from its record peak of 3158. After dipping below the H4 cloud last week the market is now back above there and according to this as long as price is above 3113 then the uptrend remains in place

In less than 24 hours Britons will head to the polling booths for the 3rd general election in the past 5 years. Ever since the pandemonium which ensued in the markets following the 2016 EU referendum, big political events have garnered a greater degree of interest amongst traders and they now eagerly await another that has the potential to cause quite a stir. The pound dropped swiftly last night when a widely viewed poll showed the Conservaitve lead trimmed, but the currency has recovered throughout the day and trades back near where it did before the release at the time of writing.

A closer look at the election itself, when the results will be known and the possible market impact can be found here.