1. Mixed Minutes From The Fed
Investors were slightly surprised yesterday after the Fed’s minutes revealed a slightly less dovish outlook than was expected and promised to stop shrinking the balance sheet later in the year. But what does this all mean?
It means that while the Fed says it remains committed to its ‘patient’ monetary policy outlook, the possibility of more rate hikes towards the end of the year is not completely off the table. The opposite goes for its plans to shrink the balance sheet, however.
The Fed has been trying to whittle away at its whopping $4 trillion debt mountain by as much as $50bn per month in an effort to relieve some of the pressure built up over years of quantitative easing. This has a restrictive effect on the economy which essentially detracts from growth to try and achieve a more neutral policy outlook.
Powell’s plans to stop shrinking the balance sheet highlights the Fed’s concerns about the health of the global economy and US growth going forward, but gives a relatively mixed message for now. This sentiment showed up in S&P 500 and Dow Jones which ended marginally up yesterday with investors taking a more cautious approach to the news.
Today’s session will be an important indicator of investor confidence and the strength of the post-Christmas bull run. So keep your eyes on the markets today, people!
2. UK On Fitch’s Radar
Credit ratings agency, Fitch, has indicated that a downgrade of the UK’s AA debt rating may be on the cards, owing to the high levels of Brexit uncertainty. As if Theresa May needed more bad news?
This is just the latest of the many woes affecting the UK economy thanks to the looming Brexit deadline. So far Brexit has had a significant impact on investor confidence, detracted from investment and GDP growth and increased risk considerably. Ouch.
While Fitch’s interest may not have sparked all out panic just yet, an actual downgrade would do lasting damage to the economy. This makes reaching an agreement all the more important with less than 40 days left until D-Day. C’mon Theresa, now is the time to pull something ingenious out of the bag!
Even though She described recent high-level talks with Brussels to be “constructive”, investors are becoming increasingly nervous about the prospects of a catastrophic no-deal event occurring. While Fitch said that its current assumption was that a no-deal Brexit would be avoided, it issued a stark warning about further slowdowns in GDP (-0.2%) and the increased likelihood of a recession.
The announcement weighed on the Pound late in the US session, ending down 0.1% for the day, but quickly pared the losses this morning. Be prepared, the next few weeks may get bumpy!
Today we are watching…
1. Newmont Mining (#newmont)
Despite its 36% decline last year, Newmont is looking in fairly good shape to beat earnings estimates this year. The company has regained 20% of its losses since October and managed to cut costs throughout its copper, iron ore and gold operations. Its investments in Ghanaian gold projects are also set to pay dividends in the form of higher-grade, but lower cost gold which will likely give the company a solid boost this year.
2. HP (#hp)
Analysts are on the fence about HP’s earnings announcement today with mixed expectations about the prospects of an earnings beat. The company is set to deliver a year on year increase in both earnings and revenue, but analysts are not entirely convened. The share has traded extremely choppily all week, giving little indication about investor sentiment going into the announcement. At this point its anyone’s guess! The consensus EPS estimate is $0.52 (+8.3%) on revenue of $15.05bn (+3.7%).