- FOMC’s minutes stated that many policymakers felt another rate increase was likely warranted in 2017 despite debate on causes of low inflation
- Asian equities traded mostly higher following further record US closes. USD broadly weaker against its majors post-FOMC
- Looking ahead, highlights include weekly jobs data, US PPI, DoEs and a slew of central bank speakers
– The FOMC’s September meeting minutes stated that many policymakers felt another rate increase was likely warranted in 2017 despite debate on causes of low inflation.
– They also noted that further rate increases should depend on incoming data and that a few policymakers thought any further rate increases should be deferred until information ‘confirmed’ low inflation would not persist.
– The minutes stated that despite general agreement the economy was on track, many participants were concerned low inflation might persist and require ‘patience’ in tightening policy, while policymakers ‘on balance’ believed inflation would move to the Fed’s 2.0% target though perhaps more slowly than thought.
– Participants acknowledged that hurricanes would affect economic activity in the third quarter but growth would rebound by the end of the year.
Asian equity markets traded mostly positive after another set of fresh record levels for all major indices in US, where focus was on the FOMC minutes which suggested concerns over weak inflation. The positive momentum helped Nikkei 225 (+0.5%) extend on its highest levels in over 2 decades and test the 21,000 level, while ASX 200 (+0.3%) was somewhat muted as weakness in miners capped upside. Elsewhere, Hang Seng (+0.3) and Shanghai Comp. (-0.2%) were mixed with underperformance in the mainland after another lacklustre PBoC liquidity operation which led to a net daily drain of CNY 40bln. 10yr JGBs were relatively flat as demand lacked amid a mostly positive risk tone and reserved BoJ Rinban announcement for JPY 710bln of JGBs in the belly to the super-long end.
PBoC injected CNY 20bln via 7-day reverse repos for a net daily drain of CNY 40bln. (Newswires)
PBoC set CNY mid-point at 6.5808 (Prev. 6.5841)
ECB’s Praet said deflation risks have disappeared, but that Euro area inflation remains subdued and that sustained inflation adjustment will guide QE exit. Praet added that a substantial amount of stimulus is still required and that ECB should communicate more on reinvestment policy (Newswires)
ECB’s Vasiliauskas commented that normalization is a challenging process. (Newswires)
Spanish PM Rajoy gave the Catalan leader 5 days to clarify stance regarding independence. (Newswires)
Brexit negotiations are at a virtual political standstill, with no notable advances made in the fifth round of negotiations, according to several diplomats briefed on the discussions. (FT)
UK RICS Housing Balance (Sep) 6 vs. Exp. 4 (Prev. 6). (Newswires)
Germany is said to favour UK banks gaining transitional EU access. (Newswires)
USD was subdued with the USD-index below the 93.00 level after yesterday’s FOMC minutes release which benefitted the greenback’s major counterparts in which GBP/USD extended gains above the 1.3200 level, while AUD/USD reclaimed the 0.7800 handle with mild support also seen from better than expected Home Loans data. The remainder of currency markets were fairly muted which saw JPY crosses maintain the gains from the positive risk-inspired flows.
Commodities saw mixed and range-bound trade overnight in which WTI crude futures pulled back to test the USD 51/bbl level after a surprise build in headline API crude oil inventories. Elsewhere, gold prices were supported off yesterday’s lows as USD was gradually pressured in the wake of the FOMC minutes, while copper was flat and held onto recent advances amid a mostly positive global risk tone.
US API weekly crude stocks (6 Oct, w/e) 3097K (Prev. -4079K). (Newswires)
US President Trump stated we cannot allow North Korea situation go on, while there were prior comments from the North Korean Foreign Minister who said Trump has lit the wick of war with sanctions and that North Korea will make US pay. (Newswires)
Trade in the fixed income complex was also subdued on Wednesday. The US Treasury auctioned 3s and 10s today, which were generally well received, with the former coming in on the screws, while the latter stopped-through by 0.2bps. Meanwhile, the probability of a December hike was relatively unchanged after the release of the FOMC’s meeting minutes. US 10-Year T-Note futures for December settled 1 tick lower at 125-07+.
Fed’s Williams (Non-Voter, Soft Hawk) said that it is appropriate to raise interest rates gradually and that he sees one further hike in 2017 and then 3 in 2018. (Newswires)
Fed’s George (Non-Voter, Hawk) said that the Fed is meeting its dual mandate as she called for gradual hikes. She opined that waiting for inflation to rise to target risks unleashing too difficult to contain inflation. She also highlighted that reaching the Fed’s inflation target has been more difficult than she expected and that she believes that soft inflation is due to one-time shocks. (Newswires)
Fed’s Bostic (Non-voter, N/A) said that US economy appears to be on solid footing and sees inflation to drift up to 2% over next 1-2 years, while he added that the start of Fed’s balance sheet runoff is not seen as significant tightening. (Newswires)
Politico reported that US Treasury Secretary Mnuchin is “strongly pushing” US President Trump to name current FOMC governor Jerome Powell as the next Fed Chair. (Politico) In related news, a WSJ survey suggested that Kevin Warsh is seen as Trump’s most likely pick to lead Fed. (WSJ)
US President Trump vowed to lower corporate taxes to a maximum 20% from 35% and above, while he also pledged to cut small business tax marginal rate by 40% and said they are looking at an around 10% repatriation tax rate. In separate news, US President Trump is to sign an order today for healthcare which the White House stated is to promote choice and competition. (Newswires)