Contrary to Expectations: A Dovish FOMC
The FOMC minutes were interpreted as more dovish than expected with voting members suggesting they’d require more data before voting for a hike
• Nikkei 225 was hampered by a broadly firmer JPY with USD/JPY briefly breaking below 100.00. However, Japanese PM Abe adviser Honda stated that there is a 50% chance the BoJ will take bold action in Sept
• Looking ahead, highlights include UK retail sales, EU CPI, ECB Minutes, Philadelphia Fed Manufacturing Index and earnings from Wal-Mart
• Fed officials were split in regards to a potential hike at the September meeting.
• Voting members agreed that more data would be required before rates are increased further.
• Some officials saw an increase in rates as warranted soon.
The release was interpreted as slightly more dovish than expected upon digestion of the report, with the fact that voting members agreed more data would be required garnering the most attention. This did come in the context of the contrasting commentary made by Fed’s Dudley earlier in the week and also the disappointing PPI, Retail Sales and CPI releases since the meeting. As such, the USD lost ground against its major counterparts, while yields fell across the curve. As ever, a choppy reaction was seen in US equities given the uncertainty over a future rate hike.
Asia equities traded mixed following the mild gains seen on Wall St. after dovish FOMC minutes, although Japanese sentiment was dampened on JPY strength and poor trade data. Nikkei 225 (-0.2%) was pressured after USD/JPY fell below 100.00 and July trade figures showed both exports and imports declined by the most since 2009, while ASX 200 (-0.4%) was weighed ON by disappointing earnings. Chinese markets are positive with the Hang Seng (+1.3%) underpinned by strong results from the likes of Ten cent and Lenovo, while the Shanghai Comp (+0.1%) saw indecisive trade after firm Chinese Property Prices which could spur outflows from stocks into the rampant sector.
Chinese Property Prices (Jul) Y/Y 7.90% (Prev. 7.30%).
Japanese PM Abe adviser Honda stated that there is a 50% chance the BoJ will take bold action in September and added that it is not necessary for the BoJ to further cut the deposit rate. (Newswires)
Japanese Trade Balance (JPY)(Jul) 513.5B vs. Exp. 283.7B (Prev. 692.8B).
Exports (Jul) Y/Y -14.00% vs. Exp. -14.00% (Prev. -7.40%)
Imports (Jul) Y/Y -24.70% vs. Exp. -20.60% (Prev. -18.80%)
EUROPE & UNITED KINGDOM
News flow from the region remains light overnight.
USD remained pressured against its major counterparts and EM currencies alike, while JPY strengthened with USD/JPY fluctuating around 100.00. AUD/USD briefly reclaimed 0.7700 after better than expected employment data which showed the unemployment rate fell to 5.7% from 5.8%, although gains were capped as the beat was largely due to part-time jobs.
Australian Employment Change M/M 26.2K vs. Exp. 11.0K (Prev. 7.9K).
Full Time Employment Change -45.4K (Prev. 38.4K)
Part-Time Employment Change (Jul) M/M 71.6K (Prev. -30.6K)
Unemployment Rate (Jul) M/M 5.70% vs. Exp. 5.80% (Prev. 5.80%)
Oil prices traded in a subdued fashion overnight with WTI crude futures holding onto most of yesterday’s gains and remains in proximity to the USD 47/bbl level. Gold (+0.3%) was supported following the dovish-perceived FOMC minutes release as USD weakness underpinned prices, which copper also benefited from.
CME lowered gold futures maintenance margins for specs by 10% from USD 6,000 to USD 5,400 for Aug and Sept.
Fed's Bullard (voter, soft-hawk) maintained his call for one rate hike in the foreseeable future and also reiterated his outlook is data dependent.
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