Global Markets:

  • Asian stock markets: Nikkei is up 1.20 %, Shanghai Composite gained 0.40 %, Hang Seng dropped 0.85 %, ASX fell 0.10 %
  • Commodities: Gold at $1223 (-1.00 %), Silver at $18.54 (-1.05 %), Crude Oil at $92.50 (-0.75 %)
  • Rates: US 10 year yield at 2.62

News & Data:

  • New Zealand GDP QoQ 0.7 % vs 0.6 % expected
  • New Zealand GDP YoY 3.9 % vs 3.8 % expected
  • Japan Trade Balance JPY-949bln vs JPY-1029bln expected
  • Japan Adjusted Trade Balance JPY-0.92trl vs JPY-0.99trl expected
  • Japan Exports YoY -1.3 % vs -2.6 % expected
  • Japan Imports YoY -1.5 % vs -1.2 % expected
  • China House Prices YoY 0.5 % vs 2.3 % expected

FOMC Statement Highlights:

  • Fed repeats highly accommodative policy to be appropriate for “considerable time” after QE ends
  • Fed says unemployment rate is little changed and a range of labor market indicators suggest significant underutilization of labor resources
  • Fed says to reduce bond buying to $15 bln per month
  • Fed repeats inflation running below target, but expectations stable
  • Fed says 14 officials would prefer first rate hike in 2015 (previous: 12)

 

FOMC Summary:

The Fed has decreased their QE programme by another $10 billion as expected and said that it will unwinding it completely at the next meeting in October. This will mark the end of a six-year effort to boost the economy through quantitative easing. The central bank kept the phrase “considerable time”, referring to the time period of low interest rates after QE has finished, but Yellen said during the press conference that rate decisions are data dependent and that if the economy should grow faster, the Fed would act accordingly by rising rates more quickly. The new dots chart released by the Fed yesterday showed that most officials agree that a rate hike will happen in 2015. Fourteen of them expect this, up from a previous twelve when the last statement was released.

FX Overview:

USD has been gaining across the board after the FOMC, as markets interpreted the statement as more hawkish. The Euro fell from a high of 1.2975 to a low of 1.2833 and is now consolidating around 1.2855. The ECB will announce the take-up of the TLTRO auction today at 09:15 GMT and many see this as a possible negative catalyst, adding further pressure on the currency.

GBP/USD declined to 1.6245, but is holding well, all things considered. There will be great volatility in the next 36 hours or so as Scotland is holding it’s independence referendum. Voting starts today and is expected to finish at 22:00 local time. The results are expected to arrive tomorrow morning around 05:00 GMT (15:00 Sydney time). Liquidity will be poor and placing bets with tight stops makes little sense ahead of the event. 1.60 and 1.65 will be the key levels on both side of the range.

USD/JPY rallied to a high of 108.81 and seems unstoppable. Resistance at 109.00, but if the USD bull run can be sustained, a breakout of 110.00 could be happening soon. The commodity currencies are under pressure again, but the Australian Dollar even more so than the Loonie and the Kiwi Dollar. After the break sub-0.8950, next support lies at 0.8880. A break beneath that level would suggest we are heading for a test of the yearly low at 0.8660.

Upcoming Events:

  • 08:30 GMT – UK Retail Sales (0.4 % MoM, 4.1 % YoY)
  • 12:30 GMT – US Building Permits (1.045M, -0.4 % MoM9
  • 12:30 GMT – US Housing Starts (-4.4 % MoM, 1.040M)
  • 12:30 GMT – US Initial Jobless Claims (305k)
  • 14:00 GMT – US Philadelphia Fed Manufacturing Index (23.0)