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Markets rally ahead of Federal Reserve's policy meeting - 16.9.2015

US stocks rallied on Tuesday after economic reports showed retail sales rose for the second month in August. The dollar strengthened with the ICE dollar index, a measure of dollar’s strength against a basket of six major currencies, closing up 0.4%. S&P 500 rose 1.3% to 1,978.09, with all 10 main sectors finishing higher led by industrial, financial and health-care companies. Retail sales increased 0.2% in August against 0.3% expected increase. Other data were mixed. Business conditions in the New York state continued to deteriorate in September. The 0.4% fall in US industrial production in August was worse than the 0.2% expected decrease. Federal funds futures market participants raised slightly their expectations of rate hike at September 16-17 Federal Reserve policy meeting to 25% from 22% in the previous day, but it is not clear whether policymakers will decide to hike the interest rate on Thursday given recent market turmoil. The trading was light with the trading volume at 5.9 billion shares on US exchanges, about 18 percent below the three-month average. Today at 12:00 CET mortgage applications will be released in America. At 13:30 CET August inflation report will be released. The tentative outlook is neutral. At 15:00 CET National Association of Home Builders housing market index will be released. The tentative outlook is neutral.

European stocks advanced on Tuesday as they pared losses from the previous session. The euro weakened 0.4% against the dollar. The Stoxx Europe 600 rose 0.8% after falling as much as 0.5% during the session. Germany’s DAX 30 was up 0.6%. Economic data showed euro-zone’s trade surplus widened from seasonally adjusted 21.9 billion euros in June to 22.4 billion in July, the highest level since 2004. At the same time the ZEW indicator of economic expectations fell from 25 in August to 12.1 in September, the lowest level for German economic sentiment in 10 months amid growing concerns over the growth outlook in emerging economies, especially China. Today at 10:00 CET August final inflation data will be released in euro-zone. The tentative outlook is neutral.

Nikkei rose 0.8% today with yen edging higher against the dollar as investors’ confidence was buoyed by continued increase of consumer spending in US. Major exporters like Toyota Motor, Honda Motor and Panasonic advanced. Tomorrow at 00:50 CET August trade balance will be published in Japan. The tentative outlook is negative. At the same time financial data on foreign and domestic purchases of bonds and stocks will be released. At 7:30 CET Bank of Japan Governor Kuroda will speak at the National Securities Industry Convention in Tokyo.

Chinese stocks closed sharply higher today in the last minutes of trading session, a sign that state backed funds intervened to support the prices.

Oil futures prices are rising today after industry group the American Petroleum Institute reported a 3.1 million-barrel crude stock decline last week. At 15:30 CET today official data on US crude oil inventory will be published by Energy Information Administration.

Gold futures prices fell on Tuesday as US stocks advanced and dollar strengthened. Like most assets gold is expected to trade sideways ahead of the Federal Reserve’s policy meeting ending on Thursday. An interest rate increase will make the safe haven metal less attractive as gold doesn’t provide any interest income, increasing the opportunity cost of gold investment when interest rates rise.


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