Morning Report APAC: Dovish Fed lowers chance of September rate hike
- FOMC minutes outlined conditions for policy firming had not yet been achieved
- There was a very mixed session overnight in currencies following the dovish tone
- Energy shares tumbled the most since January
- 0200: EUR – Germany PPI MoM (Exp. 0.0%, Prev. 0.2%), YoY (Exp. -1.3%, Prev. -1.4%)
- 0400: THB – Export Orders YoY (Exp. -4.2%, Prev. -5.8%)
- 0430: GBP – Retail Sales Ex Auto Fuel MoM (Exp. 0.2%, Prev. -0.2%), YoY (Exp. 4.1%, Prev.
- 0430: GBP – Retail Sales Incl. Auto Fuel MoM (Exp. 0.4%, Prev. -0.2%), YoY (Exp. 4.4%, Prev. 4.0%)
- 0830: USD – Initial Jobless Claims (Exp. 270k, Prev. 274k), Continuing Claims (Prev. 2273k)
- 1000: USD – Existing Home Sales MoM (Exp. -1.3%, Prev. 3.2%)
- 0820: USD – Fed’s Narayana Kocherlakota Speaks at Bank of Korea Event
- 0245: USD – Fed’s John Williams Speaks in Indonesia at Conference
- Most judged that conditions for policy firming had not yet been achieved, but were approaching that point.
- Some participants expressed the view that the incoming information had not yet provided grounds for reasonable confidence that inflation would move back to 2% over the medium term and that the inflation outlook thus might not soon meet one of the conditions established by the Fed for initiating a firming of policy. Members generally agreed that additional information on the outlook would be necessary before deciding to implement an increase in the target range.
- Some were more positive and "generally anticipated that inflation would rise gradually toward 2% as the labour market improved further and the transitory effects of earlier declines in energy and import prices dissipated”.
- While the recent Chinese stock market decline seemed to have had limited implications to date for the growth outlook in China, several participants noted that a material slowdown in Chinese economic activity could pose risks to the US economic outlook.
- Some were concerned that a move in rates “might lead to further appreciation of the dollar, extending the downward pressure on commodity prices and the weakness in net exports”.
- The committee’s communications around the time of the first rate increase should emphasise that the expected path for policy, not the initial increase, would be the most important determinant of financial conditions and should acknowledge that policy would continue to be accommodative.
We believe that the commodity emerging-market currencies should continue to suffer in this environment with lower oil prices and EM equities trading lower (check the EM ETF in our platform EEM:arcx. Our macro-analyst Kay Van-Petersen will write a piece on it soon). However, we could see some consolidation in the long USD position in the rest if the Fed decides to take its time before the first hike.
the FOMC's minutes. Photo: iStock