A steep surge in oil by nearly 10% alongside a weak dollar yesterday is likely to drive U.S. markets higher today. U.S. stock futures are bobbing at about even after being positive earlier. S%P 500 Futures are down a modest three points and Nasdaq Futures are currently even.
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The key factor that could keep markets buoyant today will be if oil can sustain it’s young two-day rally. The rally is reflecting optimism over a possible meeting between OPEC and Russia over an output cut, though it could be a publicity stunt to push prices up without actually cutting production. Brent Crude is trading just below $35 while the U.S. Crude oil is at $32.20 per barrel.
The US dollar has also substantially weakened against major currencies, which is also fueling the oil rally. Lower-than-expected service activity data issued yesterday has further strengthened beliefs that the Federal Reserve will not implement rate hikes as aggressively as it once thought.
Reaction in other markets
The outlook over slowed monetary tightening found further ground after New York Fed President William Dudley said that the global economic environment may leave a deeper impact on the U.S. economy and that financial conditions in the U.S. have tightened considerably. It is unclear what he was referring to exactly in terms of tightening though, as interest rates remain at record lows across the yield curve. The statement nevertheless prompted a rally in U.S. markets yesterday, with Asian and European markets reflecting the same sentiment today.
The rest of the day will be centered around the Bank of England’s rate decision alongside minutes of its Monetary Policy Committee meeting. It is also scheduled to release the quarterly inflation report today for the UK. UK analysts are firm that the Bank of England will not raise rates until late 2016 in view of the current global economic environment as well as the region’s weak data.
Apart from this, the European Commission has slashed down its inflation estimate to 0.5% from 1% for the Eurozone, as a result of an impact from a fall in oil prices. In the U.S., a range of data related to employment will be released today while the official employment report by the government will be published tomorrow.