Article / 29 October 2015 at 1:58 GMT

Morning Report APAC: Hawkish FOMC adds pep to USD

APAC Sales Trading Desk / Saxo Capital Markets
Singapore
  • FOMC says it will assess progress towards full employment and 2% inflation
  • RBNZ kept rates at 2.75% but governor concerned about the higher NZD
  • Gold reacts heavily to FOMC statement, dropping around 1%

 

By Saxo APAC Sales Trading

Economic data of the day (Singapore Time - GMT + 8)
0750: JPY – Industrial Production MoM (Exp. -0.8%, Prev. -1.2%), YoY (Exp. -2.9%, Prev. -0.4%)
1030: SGD – Unemployment Rate SA (Prev. 2.0%)
1655: EUR – Germany Unemployment Change (Prev. 2k), Claims Rate (Prev. 6.4%)
2030: USD – Initial Jobless Claims (Prev.  …), Continuing Claims (Prev.  ….)
2030: USD – GDP Annualised QoQ 2Q (Exp. 1.7%, Prev.  3.9%),
2030: USD – GDP Price Index (Exp. 1.5%, Prev.  2.1%), Core PCE QoQ (Exp. , Prev.  1.9%)
2100: EUR – Germany CPI MoM (Prev. -0.2%), YoY (Prev. 0.0%)
2200: USD – Pending home Sales MoM (Exp. 0.5%, Prev. -1.4%), YoY (Prev. 6.7%)

Overnight

FOMC: The Federal Reserve Bank came out more hawkish than expected, saying they will consider tightening policy in their next meeting in December. They removed the statement about the global economic and financial developments.

For the labor market they said that “labor market indicators, on balance, show that underutilisation of labor resources has diminished since early this year”.

“In determining whether it will be appropriate to raise the target range at its next meeting, the Committee will assess progress - both realised and expected - toward its objectives of maximum employment and 2% inflation.”

The Federal Open Market Committee vote was 9-1, as Richmond Fed President Jeffrey Lacker dissented for a second straight meeting, again calling for a quarter percentage point rate increase.

RBNZ: The Reserve Bank of New Zealand was on hold at 2.75% as expected but governor Graeme Wheeler said that “some further reduction in the OCR seems likely”.

He expressed some concerns about the higher NZD: “The exchange rate has been moving higher since September, which could, if sustained, dampen tradables sector activity and medium-term inflation…This would require a lower interest-rate path than would otherwise be the case.”

Wheeler expects inflation to come back in 2016: “Inflation is expected to return well within the target range by early 2016, as the effects of earlier petrol price falls drop out of the CPI calculation and in response to the fall in the exchange rate since April."

On the housing market he said that “house-price inflation in Auckland remains strong, posing a financial stability risk".

The RBNZ will introduce new measures aimed at Auckland residential property investors from November 1, requiring them to have a deposit of at least 30% for a mortgage. The central bank has said it expects this to reduce the city’s house-price inflation by as much as 4 percentage points. Regarding the dairy market, RBNZ said It was too soon to say whether the rebound in dairy prices would be sustained.

Riksbank: The Swedish Central Bank kept its repo rate unchanged at -0.35% and decided to expand its QE program by SEK65 billion to June 2016, so that total purchases will amount to SEK 200bn. “There is still considerable uncertainty regarding the strength of the global economy and central banks abroad are expected to pursue an expansionary monetary policy for a longer time,” the bank said.

“The trend of rising inflation is expected to continue. But compared with the assessment at the previous monetary policy meeting, the inflation forecast has been revised down slightly. This depends on poorer inflation prospects abroad as well as on a new assessment that demand needs to be stronger in Sweden in order to stabilize inflation.”

Japan: Industrial production came in much higher than expected this morning at 1% above the August figure (-0.6% expected) and -0.9% against a year ago. (-2.6% expected). Note that the Bank of Japan will be watching this number carefully to make its decision.



Foreign exchange

xxx

The relative hawkish statement from the FOMC pushed the USD higher across the board. The DXY index after breaking the 200 Day Moving Average last week is continuing its march higher and almost reaching the August highs.

The next target will then be the April highs at the psychological level of 100. We have the BoJ meeting tomorrow and another easing would definitely push USD further higher.

EUR has confirmed the break of the 200 DMA after the Fed comments and is now targeting the support of 1.0830.

The Swiss National Bank is happy that the concentration was on the USD overnight pushing USDCHF much higher and almost back to parity, a level not seen since March this year.

The outperformer of the night was CAD with USDCAD dropping 0.5% after the FOMC statements pushed oil much higher overnight. CAD was a beneficiary of the move.

In emerging markets, USD rallied as well against most currencies. USDKRW finished more than 1% higher in NY.

USDSGD is trading again above 1.4000 and has its way cleared to a much bigger move higher. MYR was in between a strong rally in the USD and a rally in oil and remained fairly stable overnight but moving slowly higher back to the September levels.

Foreign exchange movements

xxx
 
JPY movements remained bid after the FOMC meeting and ahead of the BoJ meeting tomorrow. USDJPY has not managed yet to close above the 200 DMA since August at 121.02 and a break would trigger fresh buying of JPY vols. However, we have seen more interest for USD calls against JPY for the BoJ meeting.
 
In EURUSD, real money and macro funds continue to buy some downside EUR and the strong move yesterday and the break of 1.1000 pushed the volatilties higher.

The outperformer in the volatilties market is USDCHF with all the moevements marked higher with the pair getting closer to parity

Rates
xxx

 



All the rates in the US moved higher on the more hawkish statements from the FOMC. The 2-year Treasury note has moved 8 basis points higher and the fed fund rates are now pricing at 48% chance of a rate hike in December up from 34%.

Commodities 

 xxx

 


Equities

xxx
 











Very volatile day in the equity markets which rallied pre-FOMC statement and then dropped into negative territory after the more hawkish statements before rallying just before the close to finish at the day highs.

Stock to watch in Asia: China Life (2628 HK) had a Q3 net profit of CNY 2.35bn, a fall from 9.15bn yuan a year ago.

xxx A tale of two metals: Gold is down 1% but silver has kept its strength. Photo: iStock

– Edited by Adam Courtenay


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