Asian stocks rallied together with regional bonds after central banks in Japan, New Zealand and the US indicated monetary policies will remain accommodative for the time being. Oil and metals advanced, while the US dollar weakened broadly.
- The Fed left rates unchanged, as expected, but provided clear indication for a December hike. In their latest statement which was seen as a “hawkish hold”, the following points were expressed:
- The FOMC embraces a very slow growth US outlook, cutting rate forecasts for 2017 and 2018
- Committee was split as 3 on the board dissented in favour of a rate hike, the most since 2014
- The “dot plot”, used to signal its outlook for the path of interest rates, showed that officials expect one 25bps rate-hike this year, while 2 hikes are projected next year, down from the 3 increases forecasted in June.
- Yellen brushed off repeated press conference questions about politics and the election and said the Fed will focus on banks’ compliance and risk management when she was asked about Wells Fargo.
- According to Fed funds futures pricing, the odds for a December hike rose to 62% from 58% the prior day.
- The S&P 500 Index gained 1.1%, while the NASDAQ hit an all-time record. Energy companies and utility stocks led gainers.
- The benchmark 10yr yield fell 4bps to 1.65%. Short-end Treasuries underperformed longer-dated ones, with the spread between 2- and 30-year yields falling for a fourth day; the spread has narrowed over the past year as traders bet the Fed would increase short-term rates, curbing the long-term outlook for inflation and economic growth.
- The US dollar was broadly weaker overnight following the Fed standing pat, with the Bloomberg Dollar Spot Index declining 0.7% to a one-week low.
- The BOJ refrained from moving rates deeper into negative territory yesterday. Instead, the central bank shifted the focus of stimulus from expanding monetary supply to controlling interest rates, pledging to pin benchmark 10yr yields around zero. The BOJ also strengthened its forward guidance by committing to an “overshoot” of consumer-price gains of more than 2%.
- The central bank is set to adopt a more flexible approach to the core of its framework by adjusting the volume of its asset purchases as necessary in the short term to control bond yields, while keeping it at about 80 trillion yen annually over the long term. At the same time, the target for average maturity of its government bond holdings was scrapped.
- The policy tweaks were seen as an effort to limit the negative impact on bank earnings.
- RBA Governor Philip Lowe said inflation is expected to remain low for some time but should gradually pick up as the labour market continues to strengthen. He added that he expects the economy to continue to be supported by low rates and a weakening AUD since early 2013.
- The governor also said it was unlikely the RBA would resort to unconventional measures and that a flexible inflation target was the most appropriate way to decide policy. The RBA’s current inflation target is 2 -3%.
- RBNZ kept rates unchanged earlier this morning, as expected. However they signalled a rate-cut could happen at its next meeting in November, citing underwhelming inflation and an overly-strong NZD.
- Spot gold gained 1.3% to $1,337.06/Oz following the Fed’s announcement. The next resistance lies at $1,352/Oz – gold’s one-month high.
- Silver for immediate delivery advanced 2.3% to $19.8856/Oz, and looks poised to test the $20/Oz resistance soon.
- Crude oil for October delivery closed 2.9% higher and jumped a further 1.2% this morning to $45.88/bbl, following data from API and EIA showing much lower inventory levels than expected. A weaker US dollar has also helped drive the boost.
- Spot 1.3511
- USDSGD declined 0.7% to 1.3511, the lowest level in more than a week following broad US dollar weakness overnight.
- Spot 0.7633
- AUDUSD rose 0.7% to an intraday high of 0.7650 this morning, and looks heads on the increase its winning streak to six consecutive days.
- Spot 1.3085
- USDCAD declined 0.8% to 1.3061, breaking out of its week-long range.
- The momentum is now to the downside and it is likely that the 1.3000 handle will be tested soon.
- Spot 6.6782
- The PBOC strengthened its reference rate by 0.34% to 6.6513 against the dollar, the most in more than a month.
- USDCNH was down 0.3%, before paring back declines after Asian trade commenced today.
- Spot 100.39
- USDJPY initially rose to 102.79 following the BOJ’s policy announcement yesterday.
- However yen strength soon resurfaced and USDJPY reversed direction and fell 1.3% to a low this morning of 100.10.
- Spot 1.3050
- GBP rebounded from its one-month low of 1.2946 yesterday, gaining 0.4% to 1.3052 earlier today.