The main topics on the market in may

The main topics on the market in may

The main topics on the market in may

The main topics on the market in may will be the situation in the oil market and the prospects for the fed's monetary policy

The fourth month of the year turned out to be very rich in important events, which eventually contributed to increased volatility of Forex currency pairs. The biggest trend in April was an increase in oil prices. Since the beginning of the month, the price of Brent and WTI oil has increased by almost 20 percent. As a result, prices were near a 5-month high.

 


The main reason for the rise in the price of "black gold" was the expectation of a meeting of oil-producing countries on April 17, the purpose of which was to discuss the issue of freezing oil production. Before the meeting, there was a lot of speculation on the market - some experts were extremely pessimistic about the possibility of reaching an agreement, while others noted that Iran could bring down oil prices after the meeting. Summing up the meeting, it should be emphasized that the deal to freeze oil production did not take place. Saudi Arabia demanded the participation of all OPEC members, including Iran, before starting negotiations. At the same time, Iran refused to participate in the meeting, explaining that it would discuss the freeze only after increasing its own production to 4 million barrels per day. Against the background of such negative reports, oil prices fell by 7 percent, but were able to recover fairly quickly due to several positive factors. First, oil producers immediately planned new negotiations in the OPEC+ format after the June cartel summit. In addition, before the summit in June, Iran will have time to increase oil exports, which will allow it to participate in the freeze program. Oil was also supported by news of a strike by oil workers in Kuwait. Against this background, the volume of oil production in the country decreased to 1.5 million barrels per day against the average for March of 2.8 million barrels per day. In General, recent events are gradually convincing that the worst is over and the global process of rebalancing the oil market has begun.

 

Market participants ' attention was also focused on the results of meetings of the world's Central banks, namely the RBA, Bank of Canada, Bank of England, ECB, fed, Central Bank of New Zealand and Bank of Japan.

 

As expected, the Reserve Bank of Australia left the interest rate at a record low of 2.0%. However, the Central Bank again paid attention to the exchange rate of the national currency. "The Australian dollar has recently strengthened somewhat. This partly reflects some growth in commodity prices, but monetary policy in other countries has also played a role. In the current circumstances, the growth of the exchange rate may complicate the process of reorientation that is currently taking place in the economy," - said the head of the RBA Glenn Stevens. It is worth emphasizing that at the end of April, the Australian dollar fell by only 0.2% after growing by 7.2% in March.

 


The next meeting was the Bank of Canada, the results of which also confirmed expectations. The Central Bank left the main interest rate at 0.5%, and announced an increase in the forecast for GDP growth in 2016, citing new measures of fiscal policy. According to new estimates, the economy will grow by 1.7% in 2016 (previously expected to expand by 1.4%) and by 2.3% in 2017 (revised from +2.4%). The Central Bank also warned that lower commodity prices will continue to constrain growth in the next few years. "Weak foreign demand, downwardly revised indicators on companies' investment, as well as the recent strengthening of the national currency – all this has had an impact on the economic Outlook," the Bank said. Note that in April, the rate of the canadian dollar increased by 3.7% against the US dollar, reaching a maximum on July 1, 2015.

 

After that, the Central Bank of England met. Recall that the Central Bank left the interest rate at 0.5%, and the volume of the asset purchase program in the amount of 375 billion pounds. The decision was made unanimously. Meanwhile, the minutes of the meeting reported that there were signs indicating that the uncertainty surrounding the outcome of the upcoming referendum on EU membership was beginning to put pressure on certain areas of business activity. Data showed that industrial production declined by 0.3% in February (growth of 0.1% was expected), and the growth rate of average earnings from December to February slowed to 1.8% from 2.1% (+2.3% was forecast). Forex statistics on retail sales were also disappointing - in March, a 1.3% drop was recorded against the forecast of -0.1%. As for the exchange rate of the pound, at the end of April, it rose by 1.7% against the us dollar.

 

As for the ECB meeting, it also did not lead to a change in monetary policy, but the comments of ECB head Draghi provoked strong fluctuations in the Euro against major currencies.

 

 

Recall that the ECB left the refinancing rate at 0.0% and the Deposit rate at -0.4%. As part of Draghi's press conference, the ECB said that interest rates will remain unchanged or will be lowered for a longer time. He also noted that the Central Bank will continue to closely monitor the situation with inflation and, if necessary, will use all available tools. Draghi urged the markets to be patient, noting that the measures taken are quite enough, we just need to wait. Returning to the inflation figures, it is worth Recalling that the final CPI did not change in March after falling by 0.2% in February. Analysts had expected a 0.1% decline. The base index, which excludes energy and food prices, was 1.0% per annum, which coincided with the forecast. But despite the improvement, inflation has remained well below the ECB's "just under 2%" target since 2013.

 

One of the most anticipated events of the month was the fed meeting. Before the meeting, a survey of 80 economists conducted by Reuters showed that none of them believed the fed could raise rates in April. As expected, the Central Bank left the rate in the range of 0.25%-0.50%, but did not rule out the possibility of raising it in June. The statement noted an improvement in the labor market, but the Central Bank acknowledged that economic growth has slowed.

 

On the same day, the Central Bank of New Zealand held a meeting, the results of which also coincided with forecasts. The Central Bank left the rate at 2.25%, but warned that it may have to be lowered. This is due to the fact that the slowdown in the global economy and the strengthening of the local currency may prolong the period of low inflation. "It is desirable to reduce the new Zealand dollar in order to increase inflation and help the trade sector," said the head of the RBNZ Wheeler. It is worth noting that in April, the NZD/USD pair recorded an increase of 0.9%.

 

The last meeting was held by the Bank of Japan. After the yen's exchange rate against the dollar rose to its highest since October 27, 2014 in the first half of the month, rumors began to circulate in the market that the Central Bank would announce additional stimulus measures. To stop the further strengthening of the yen, the authorities decided to influence the market through verbal interventions, however, the effect of these measures was minimal. The situation changed after unconfirmed reports that the Central Bank of Japan may introduce negative interest rates on some target loans. Against this background, the yen began to actively fall in price and returned to the level of the opening of April. However, the unexpected results of the Central Bank meeting provoked a strengthening of the yen by more than 350 points. As it became known, the Bank of Japan left unchanged the Deposit rate at -0.1% and the asset purchase program in the amount of 80 trillion. yen per year. The Central Bank also revised the timing of reaching the inflation target, saying that the 2% inflation rate is likely to be reached in fiscal year 2017.

 

 

In may, market participants will continue to monitor US economic statistics, which may shed light on the future prospects for monetary policy and increase the likelihood of a rate increase during the June meeting. Now, fed interest rate futures indicate that the probability of a rate hike in June is 19%. The focus will also be on meetings of Central banks, namely the RBA (may 3), the Central Bank of England (may 12), and the Central Bank of Canada (may 25).

 

Also in may, investors will observe the dynamics of the oil market. Some analysts warn that the recent increase in oil prices is not supported by fundamental factors in physical markets, and there is a risk of falling prices in the near future.

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