Market Brief
FOMC minutes provide no surprises
Risk appetite shifted from mild to weak on the back of weak Chinese economic data. Asian regional equity indices are trading in the red with the Nikkei -0.39%, Hang Seng -1.41 and Shanghai Composite -0.05% (however the recent moment is positive). Global yields are trending lower as soft exports from China raise questions on the strength of global demand (FX markets remain correlated to yields).
In the FX markets, the USD was mixed as the FOMC minutes left much open for debate, especial the timing of the next interest rate hike. Selling pressure on the THB relaxed slightly around the 35.72 levels, however, with the King’s health deteriorating, investors will be watching the THB carefully.
OPEC's report that crude production has reached the highest level in 8-years, sent oil prices lower.
An article in the FT regarding the cost of Brexit including €20bn payments to settle financial obligations, has inspired sterling bears, selling GBP/USD down to 1.2143. Endless headlines, speculation, rumors will keep volatility around the GBP high.
The FOMC meeting minutes highlighted significant divergence between members. Three members dissented voting for a 25bp rate hike. However, the majority indicated that,
the case for an increase in the federal-funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives.
Overall, the minutes provide no revelations as we continue to expect the fed to drag their feet on an interest rates increase. We expect US economic data to remain unconvincing, yet should data surprise to the upside, watch for the Fed to blame anything: a rise in oil, strong USD, the price of tea in China, anything that would help them avoid tightening policy.
We remain negative on the USD believing that the current rally in yields is unwarranted, pricing of a December hike has maxed at 67% probability and see upticks as an opportunity to reload USD shorts. We are constructive on EM, dividend stocks and IG credit.
Soft data from China increased speculation that global growth is unstable. China September trade surplus widened $41.99 bln against $53 bln eyed, with exports falling -10% y/y, imports -1.9%, while a positive read was expected in both cases. However, China commodity import surged.
In New Zealand, October consumer confidence climbed to 122.9 from 121.0, the highest read since mid-2015. PMI rose 2.5 points to 57.7, the highest level since January. Sept REINZ median house prices rose +3% m/m, +7% y/y. The solid data failed to give NZD/USD a sustainable boost with traders reloading shorts at 0.7080 and eyeing 0.6960 as the next target.
Another light day in regards to scheduled economic releases will have traders focused on macro news, which could come from anywhere. Expect choppy trading conditions.
Currency Tech
EUR/USD
R 2: 1.1616
R 1: 1.1428
CURRENT: 1.1113
S 1: 1.1046
S 2: 1.0913
GBP/USD
R 2: 1.3121
R 1: 1.2857
CURRENT: 1.2448
S 1: 1.2352
S 2: 1.1841
USD/JPY
R 2: 107.90
R 1: 104.32
CURRENT: 103.91
S 1: 99.02
S 2: 96.57
USD/CHF
R 2: 0.9956
R 1: 0.9885
CURRENT: 0.9825
S 1: 0.9522
S 2: 0.9444