Marketsforu Morning Markets

marketsforu

FOMC Summary:

- Fed left rates unchanged at 0.0%-0.25% with Lacker the only dissenter, though most Fed officials saw a hike by the end of 2015 with 13 officials foreseeing a first rate hike this year compared with 15 previously.

- The Fed also lowered their FFR average projections to 0.375% vs. Prev. 0.625% for end-2015, 1.375% vs. Prev. 1.625% for end-2016 and to 2.625% vs. Prev. 2.875% for end 2017.

- In reaction to the reduction in FFR projections, rates fell across the US curve, particularly in the front-end with the 2yr yield falling the most since QE was announced in 2009 amid hawkish and curve flattening positions being unwound. Alongside this, the USD index (-1.0%) made a firm break below its 200DMA and USD/JPY broke back below 120.00 after tripping bids at the handle

- During her press conference, Yellen stated that the outlook overseas has increased in uncertainty with concerns over Chinese growth creating market volatility. Yellen suggested every meeting remains a live one, adding that there can be an argument to hike rates now and that if there is viable possibility of a rate-hike in October, a special press briefing will be called.        
 
- US stocks saw volatility as Yellen delivered her presser, with the S&P 500 climbing back above 2,000 before falling to session lows as the prospect of low rate for longer, but an economy less able to cope with rate increases, were factored into prices.

- Largely the decisions and press conference were interpreted as more dovish than the market was expecting, with only 1 dissenter (Lacker) this month and one Fed official even forecasting negative rates for 2015 and 2016. As such, Fed Funds Rate futures are now pricing in the probability of a December hike at 47.8% and October at 20.9%. 

ASIA

Asian equity markets traded mostly higher as the region digested the Fed’s decision to keep rates unchanged but reiterated that a 2015 rate lift-off remained on the table. ASX 200 (+0.8%) and Shanghai. Comp. (+0.4%) traded in positive territory following the FOMC decision, while an improvement in Chinese new home prices (Y/Y -2.3% vs. Prev. -3.7%) further supported sentiment. Nikkei 225 (-1.4%) underperformed ahead of its extended 5-day closure with the index weighed on by a stronger JPY. 

EUROPE/UK

BNP Paribas and ING said the Fed’s decision to prolong the rate lift-off may increase pressure on the ECB to step up QE. 

FX

All major currencies remained firm against the USD following a dovish Fed which also lowered Fed Funds Rate projections through to 2017. However, EUR/USD retreated from yesterday’s highs and broke below the 1.4000 level, while most pares traded near post-FOMC levels amid quiet Asia trade, as RBA’s semi-annual testimony and BoJ minutes failed to inspire price action.

COMMODITIES

WTI crude futures traded lower but held near the USD 47/bbl level, while gold (-0.33%) saw a mild pullback amid profit taking after the strength seen post-Fed decision to keep rates unchanged.