While markets are preparing cautious for the FOMC rate decision on Thursday, US equities staged a rally overnight. DJIA rose 228.89 pts, or 1.4% to close at 16599.85 after breaching 16600 handle. The larger moves were found in the bond markets. Two year treasury yield rose to 0.798%, highest level since April 2011. Ten year yield and thirty year yield also extended recent rebound and broke out of recent range. Latest futures data showed markets are pricing in 25% chance of a hike this week but traders remained doubtful on the issue. Nonetheless, there were talks that some traders, in particular bond traders, are preparing for a violent move in the markets in case of a hike, that would shock the markets. Dollar, on the other hand, is mixed. US will release CPI and NAHB housing market index today.
Sterling is broadly soft as markets are awaiting another batch of economic data from UK today. CPI released yesterday showed inflation slipped back to 0% yoy in August and suggested that BoE is still months away fro a rate hike. Some economists criticized that the hawkish comments from some BoE policymakers were hollow as there is no solid ground for a hike yet. UK will release job data today with jobless claims expected to drop -5.1k in August while unemployment rate is expected to be unchanged at 5.6%. Technically, GBP/USD is possibly heading back to recent support at 1.5164.
In Eurozone, Bundesbank chief Jens Weidmann warned that "all the cheap money cannot ignite sustained growth and builds bigger risks over time, for example for financial stability." Meanwhile, he also noted that "in the long-term, Germany in any case faces considerable challenges, if one thinks for example of the ageing society, increasing competition from emerging markets or the energy (policy) change." On the other hand, ECB governing council member Ewald Nowotny indicated in a newspaper interview that quantitative easing extension could definitely be imaginable. Eurozone will release August CPI final while Swiss will release ZEW expectations.