· The dollar gained against most currencies on Thursday as traders pared their bets of an interest rate cut from the Federal Reserve following Fed Chairman Jerome Powell’s comment about U.S. inflation.
The pound slipped after the Bank of England lifted its growth forecasts but warned that Brexit continued to cloud the outlook for monetary policy. Trading volume picked up as some European markets reopened after closing for May Day on Wednesday.
Chinese and Japanese markets will remain closed for domestic holidays the rest of the week.
At 3:00 p.m., an index that tracks the greenback against the euro, yen, sterling and three other currencies was up 0.14% at 97.83.
The greenback erased initial losses against the euro, which rose earlier after German retail sales contracted by less than expected while PMI surveys from Germany to Spain were broadly within expectations. The single currency was 0.19% lower at $1.1173.
Meanwhile, sterling retreated from a two-week high against the dollar as the BOE’s decision to leave rates unchanged at 0.75% reinforced the view that UK policymakers are in no hurry to raise rates amid concerns about ongoing Brexit negotiations.
The pound was down 0.18% at $1.3025.
· The Bank of England (BOE) held interest rates steady on Thursday following the agreement to extend the deadline for the U.K.’s withdrawal from the European Union until October.
The nine-member Monetary Policy Committee (MPC), led by Governor Mark Carney, voted unanimously to keep interest rates unchanged at 0.75%.
The central bank revised up its 2019 growth forecast to 1.5% from 1.2%, as first-quarter GDP growth is expected to have picked up to 0.5%, from 0.2% in the fourth quarter of 2018, stronger than projected in its February report.
The BOE also cited better than expected growth in the U.S., euro zone and China as contributing to its more optimistic outlook.
In a press conference following the announcement, Carney reiterated that interest rates may have to increase faster than the market currently expects over the forecast horizon.
· The trade war between China and the United States is drawing to a close. According to officials close to the talks that took place yesterday in the Chinese capital, the two delegations arrived at some fixed points that will lead to a reduction in taxes imposed by Washington on Chinese imports. At the same time, it seems that the parties have also come to an agreement on how to verify the implementation of the agreements.
According to the "Political" newspaper, the two sides have come to an agreement that allows the US to remove 10% of taxes on a portion of Chinese imports; the rest of the taxes on about 200 billion of imported Chinese goods will be taken "quickly". It is not clear whether China will do the same on taxes it has imposed on US imports in retaliation.
It is expected that then the Chinese side will keep faith with ending the forced transfer of technologies and giving equal treatment to US companies and Chinese ones, as already drafted in a law approved by the government last March.
· Democrats intensified their pressure on President Donald Trump’s administration on Thursday as U.S. House Speaker Nancy Pelosi accused Attorney General William Barr of committing a crime by lying to lawmakers and a key committee chairman threatened to hold Barr in contempt of Congress.
Shortly after Barr refused to appear before the House Judiciary Committee, Pelosi accused him of lying to lawmakers about interactions with Mueller after the special counsel ended a 22-month investigation into Russia’s efforts to interfere in the 2016 U.S. election to boost Trump’s candidacy.
· Oil prices fell as much as 4% on Thursday, breaking through a key support level, as rising U.S. crude stockpiles helped offset concerns about a supply crunch.
Crude futures declined despite a wave of geopolitical concerns, including political turmoil in Venezuela and the launch of new American measures aimed at driving Iran’s crude exports to zero.
U.S. West Texas Intermediate crude settled $1.81 lower at $61.81 on Thursday, tumbling 2.8% to its weakest closing price since April 1. WTI plunged 4% to a session low at $60.95 earlier in the session.
· “The $62 level is an important level. If you break through it you could trade down to $58 pretty quickly,” said John Kilduff, founding partner at energy hedge fund Again Capital.
Brent crude oil futures, the international benchmark for oil prices, fell $1.43, or 2%, to $70.75 per barrel. Brent fell as low as $69.68 earlier in the session.
· Oil markets face three possible scenarios in Venezuela
Scenario 1: Maduro goes, Guaido comes to power
A sudden Maduro departure and transition to a Guaido-led reformist government would provide “the best hope for kick-starting the revival of the Venezuelan economy,” Croft and her team said in a note Wednesday.
“This scenario presents the most bearish outcome for (oil) prices, especially as many investors might assume that the recovery will be quick and uncomplicated. However, even if such a situation comes to pass we would caution that the road back will be arduous given the magnitude of the collapse.”
Scenario 2: Maduro stays
If Maduro manages to ride out the current wave of protests, RBC noted that the country’s economic collapse will undoubtedly accelerate as the United States ups the sanctions ante.
This outcome would be most bullish for oil prices and “is quite plausible given the substantial support Maduro is receiving from Moscow as well as the fact that junior officers have been the principal defectors.”
Scenario 3: Maduro departs but military rule remains
Another near-term outcome seen as plausible by Croft and her team would be for the military leadership to oust Maduro in favor of a candidate that they said would “avoid sweeping economic and political reforms that would dismantle the prevailing patronage machine.”
“Such a coup from above could freeze the sanctions status quo while the White House considers how much more time and energy it wants to expend on Venezuela once Maduro is gone,” the analysts said.
This would represent a moderately bullish case for crude, the strategists noted. “A handpicked military candidate may not be able to garner the necessary international support to revive the oil sector even if more sanctions were not in the immediate offing.”
OPEC in turn would likely adopt a wait-and-see approach to filling the Venezuela supply gap.
Reference: CNBC
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