Article / 22 September 2016 at 7:00 GMT

Morning Markets: Fed draws circle around December

Managing editor, TradingFloor.com / Saxo Bank
Denmark

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Watchlist

  • UK: CBI Industrial Trends Survey                  (1000 GMT)
  • US: Chicago Fed National Activity Index        (1230 GMT) 
  • US: Existing Home Sales                               (1400 GMT) 

The Federal Reserve as expected overnight held base rates steady but got the red highlighter pen out to mark December as the likely date for its much-anticipated move higher.

The presence of three dissenting voices from the regional Feds added to the growing sense that the Fed will not wait any longer than it has to (the US election on November 8 is likely to rule out any move on November 2), but any expectation that this will see the end of the easy-money era will have been dispelled by the shifting language on the rate-hike cycle which has now been reined into two from three in 2017 moving towards an ever more gradual incline.

The dollar was on the defensive in the hour going into the European session as markets broadly interpreted the big central bank meetings Wednesday as dovish after the Fed followed on from the Bank of Japan's move earlier in the day to set a more ambitious inflation target and change the way it buys government bonds to relieve its beleaguered banking sector.

That propelled USDJPY back towards the 100.0 handle, pushed GBPUSD towards 1.31 and EURUSD above 1.12. The dollar was also on the retreat against Asian currencies such as Korea's won.

The Nikkei's 1.9% rise in the aftermath of the BoJ meeting was spurred by a spike among financials but there could be some blowback from yen strength when it reopens Friday after a public holiday. Hang Seng was also on the rise again and is up some 16% since the start of June as it heads for a possible best quarter result in seven years. Equities across Europe are also likely to benefit from the feel-good factor with oil greasing the wheels as we enter the European day.

What can we glean from 'Wonderful Wednesday'? Perhaps the biggest lesson of all is that the cult of the central banker might be nearing its end. The central banks are clearly signalling ever louder that they want fiscal policy to take up the reins. Maybe we're closer to helicopter money than we realised.

Of course, European Central Banker president Mario Draghi and Bank of England governor Mark Carney speak today and the needle could change dramatically. But somehow, the big central bank interventions are beginning to look less and less relevant.

Market signals

Asian session

  • It's a bank holiday in Japan today
  • Asian markets traded higher after the US Fed announcement
  • Australia's ASX 200 was up 0.74% in morning trade
  • New Zealand's NZX 50 rose 0.56%; South Korea's Kospi was up 0.97%
  • Gold miners surged after the precious metal rose 1.6% overnight
  • New Zealand's central bank kept interest rates unchanged at 2%
  • New RBA Governor Phil Lowe says inflation targeting remains best way to conduct policy

Forex ahead

  • The NZD was knocked off a two-week high after the RBNZ left the door open for a cut 
  • However, it recovered to trade little changed at US73.47¢
  • The Aussie rose as high as $NZ1.0420, moving away from a 15-month low of $NZ1.0238
  • The AUD was one of the strongest performing currencies following the Fed decision
  • It is hovering around US 0.763 
  • The USD fell against the yen after the Fed call, going as low as 100.12
  • USDJPY downside move facing big barrier at 99.50

From the Floor

Greenback blues. “After a knee-jerk FOMC rally, USDJPY continued its decline and hit a low of 100.09 in Asia,” says Liu.

Dashed hopes. “The Fed blinked again and tried to commit to a December hike,” says Hardy.

Get all the latest from Saxo Bank's trading floors in From the Floor, within the hour.

In opinion

1..2..3
The recent upbeat UK manufacturing PMI data implies that today’s CBI reading will firm up, writes James Picerno. But if the index falls, doubts about Britain’s macro trend will resonate a bit deeper.

Wasted opportunity
If the RBNZ is serious about triggering a fall in NZDUSD, today’s monetary policy statement was a wasted opportunity, explains Max McKegg.

Asian blast-off
It was a case of taking the Fed's ball and running with it in early Asian trade – just what local markets needed to stimulate stocks and currencies, says Saxo's Singapore team.

December's on
The Fed didn't take action overnight in line with expectations but the commitment to December has been underlined, writes John J Hardy.

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Markets were bustling overnight with Hong Kong's Hang Seng among
the gainers as it heads towards its best quarter since 2009. Photo: iStock

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