Article / 28 October 2015 at 8:00 GMT

Morning Markets: Waiting for a Fed surprise

Head of Editorial Content / Saxo Bank
Denmark

Morning Markets: Prices


Watchlist

Hot topics: FOMC, USD

  • Germany: Gfk Consumer Climate Index (0700 GMT)
  • France: Consumer Confidence Survey (0745 GMT)
  • US: EIA Weekly Status Report (1430 GMT)
  • US: Federal Reserve FOMC Statement (1800 GMT) 
  • New Zealand: RBNZ Cash Rate Announcement (2000 GMT)
  • Japan: Preliminary Industrial Production (2350 GMT)

What does the Federal Reserve have up its sleeve today? This is, of course, the big question on the market's collective mind today as the US central bank's statement is set to arrive in the wake of an unprecedented (OK, somewhat... precedented) outbreak of easing in Europe, Canada and China. 

As has been the case since September, US employment data remain robust while other key macro indicators such as inflation, gross domestic product growth and manufacturing productivity remain stubbornly below target. 

At the moment, consensus expects a fairly noncommital statement from the Federal Open Market Committee as forecasts attempt to take both the mixed data and an apparently divided FOMC board into account. 

According to Saxo Bank chief economist Steen Jakobsen, however, such forecasts do not take into account the Fed's need to retain its credibility (and its ability to move markets) in the wake of September's failure to launch. As such, says Jakobsen, investors betting on a continually dovish 2015 Fed may be overstating their case. 

Market signals

Asian session

  • Japan September retail sales fall by 0.2% versus the 0.4% gain expected
  • Australian inflation data disappoint with Q3 CPI at just 0.5% (vs. 0.7% expected)
  • Core Australian inflation rose just 0.3% over the quarter and 2.1% over the year
  • Early SHCOMP rally fades leaving index down 1.72% 
  • Gold rises to $1,170.56 as traders weigh the probability of a dovish Fed
  • Midday Australian equities rally fades leaving ASX200 down 0.21%

Forex ahead

  • USD index hovers below 2 1/2-month high ahead of FOMC statement
  • Weak inflation print sends AUDUSD sharply down to 0.712 area
  • CAD continues to decline on weak WTI; USDCAD sitting at 1.3261
  • GBPUSD heading steadily lower on weak UK data, pair sliding toward 1.53 handle
  • USDJPY range tightens around 120.40 ahead of FOMC, Bank of Japan

From the Floor

Any port in a storm. ”Safe haven assets have generally been in demand,” says Moltke-Leth.

Ready to go. "The hawkish scenario, which I am leaning towards, is that this meeting is a setup for a move in December,” says Hardy.  

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

In opinion

1..2..3
Crisis, what crisis? Germans seem to be unfazed by the problems at Volkswagen, and all signs are that consumer sentiment is on the rise, says James Picerno.

Japan stuck in neutral
The Japanese problem can only be understood by events within, not oil or commodities movements from without. And as Stephen Pope explains, there's no easy solution.

Looking up from the bottom
Meanwhile Max McKegg says that even after the recent decline in USDJPY, Japan's real effective exchange rate is still at a 40-year low. So the BoJ may need to think creatively.

Crude tumble
Crude oil prices have taken another tumble, hurting commodity currencies, including the Canadian dollar, writes Saxo's Singapore trading team

Release the hawks

Investors are expecting a relatively dull FOMC statement, but the Fed may feel compelled to hike rates nonetheless says Steen Jakobsen.

The great red north

The Canadian dollar may have survived the election of a left-leaning government but its ability to withstand tumbling WTI prices is another thing entirely writes Michael O'Neill.

The Jefferson memorial in Washington, DC

Capital letters: The US economy has done what it can to justify policy normalisation, 
and now it's up to the central bankers in Washington to make their call. Photo: iStock

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