Some quite explosive overnight price action and which has followed directly from the publication of the September FOMC meeting minutes. This has seen US equities jump by almost a percent.
Some quite explosive overnight price action and which has followed directly from the publication of the September FOMC meeting minutes. This has seen US equities jump by almost a percent; US Treasury yields fall some 9bps lower at 5 years, and the US dollar lose around 0.75%. All this on a release that was supposed to be of limited interest given we had the Yellen press conference and a post-meeting statement that was accompanied by the new ‘dot points’ of FOMC members’ individual projections for the future path of the Fed Funds rate.
Three features of the minutes have grabbed attention, perhaps simply because they covered areas not directly touched on in the Sep FOMC statement/press conference. These are that:
- The strengthening of the US dollar, in the minds of ‘some’ FOMC participants, represents a downside risk to growth (and for ‘a couple’, risk of impeding progress towards the 2% inflation goal).
- Economic weakness in some parts of the word (Eurozone, Brazil and latterly Japan) posed some downside risks for USD growth.
- Fear that removal of the phrase ‘considerable time’ would be misunderstood as implying a shorter time until Fed rate ‘lift-off’ than previously discounted.
- Given that the Fed’s ‘dot points’ – that recall showed the Fed Funds rate rising further in 2015 and 2016 than previously forecast – presumably should have incorporated these risks, arguably markets have gone overboard in their interpretation.
We certainly don’t interpret the minutes as any attempt by the Fed to ‘talk down’ the US dollar (and surely they can see that a stronger Euro, Yen or Real is only going to aggravate current economic weakness in these areas?). That said, we can’t deny that it can/will impinge on the Fed’s domestic economic (and perhaps inflation) forecasts – and of course the dollar has risen further since the meeting took place – and which then feedback directly into their policy outlook – which then weakens the dollar! This scribe’s head already hurts.
There is very little else to note about offshore market news and price action, with no significant economic news out of Europe or the US. Chicago Fed President Charles Evans. An arch dove (and 2015 FOMC voting member) was out being himself, calling for ‘exceptional patience’ in raising rates, and also playing up the aforementioned US dollar risks to growth and inflation.
This morning’s release of the September labour force survey, however meaningless, is apt to keep local markets quiet this morning until the numbers are published. As NAB’s Peter Jolly suggests, ‘In truth, whatever the ABS prints for today’s September labour force should be entirely ignored on the basis of complete unreliability’. PJ also quips that it is wrong to characterize the employment report as a lottery because ‘at least a lottery has a prize’.
Given that the new August number, based on removing the previously applied seasonally adjustment, should now be put at +32k, NAB’s new pick for September is +30k (new market consensus +20k) . Slightly more (but still not much more) attention should be paid to the unemployment rate and which from what should be a new 6.0% August base (was 6.1%) we expect will be unchanged (market 6.1%).
More credible than the ABS statisticians (or perhaps to be to be fair, ABS survey data) is the RBA’s Luci Ellis, charged with financial stability and who will have as much or more input as any other RBA member into the form and substance of macroprudential rules for the housing market. She speaks at a conference starting at 12:55 AEDT.
Tonight, we will hear from no fewer than five Fed speakers between 01:15 and 06:40 AEDT. Bullard, Tarullo, Lacker, Fischer (Fed VC Stanley, not Richard) and Williams are on the agenda, as too is ECB President Draghi (in Washington for the IMF/World Bank meets).
The BoE meets (no change confidently expected) while US data includes wholesale trade and inventories and weekly jobless claims.
On global stock markets, the S&P 500 was +1.80%. Bond markets saw US 10-years -2.84bp to 2.31%. On commodity markets, Brent crude oil -0.40% to $91.69, gold was +0.4% to $1,205, iron ore -0.3% to $80.18. AUD is at 0.8847.
• Fairfax media reveals ‘secret’ €4m payment by Australia’s UGL to C.Y. Leung – later to become Hong Kong’s now embattled HK chief executive – in return for his support for its Asian business ambitions.