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Daily Market Color

Markets watching the FOMC Meeting and DNC Convention as trading begins

The Democratic National Convention and the Federal Reserve’s latest policy meeting will highlight the headlines tracked by the markets this week.  Drama for the DNC event has kicked into gear even before Day 1, as the chairwoman of the DNC agreed to resign her position after the convention is over, based on the leaking of e-mails showing senior members of the Democratic party had been working against Bernie Sanders winning the party’s nomination.

The Tuesday/Wednesday FOMC meeting is not expected to result in the Fed changing rate policy once again, with the markets only ascribing a 10% probability to a Fed rate increase at the conclusion of this meeting – albeit there is still a market-implied 47% chance of a Fed rate shift by year end. See chart below from Bloomberg.

US Treasury yields are mostly unchanged today, while post-Brexit, the yields of bonds in countries such as England and Spain are at or near the lowest levels vis a vis the comparable US Treasury yields in roughly 16 years.

Today the US dollar is rallying against most major currencies, rising 0.7% against the Canadian dollar and the Mexican Peso. The Bloomberg US Dollar index has also reached its highest level since March today.  As a result, Energy and Agricultural commodity prices are down 1-2% while Metal prices are generally flat to up 1%.  Meanwhile, crude slid below $43 a barrel for a short time as a result of the strong dollar.

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