Macro 1 minute to read

Global Macro APAC Morning Brief

Kay Van-Petersen

Global Macro Strategist

Summary:  Morning APAC Global Macro & Cross-Asset Snapshot


Happy FOMC THU 19 Sep 2019 – APAC Global Macro Morning Call


O/N, Levels & Thoughts:

So less than 6hrs ago we finally heard from the US’s Federal Reserve both from a statement & press conference perspective

We did not get the potential tail-risk decisions of -50bp cut or no change, but the base case -25bp cut, with a Powell that came across as measured in regards to the Fed’s future outlook – it does not come across as a Fed that is in a hurry to cut rates, not by any means

Its worth noting that we now have three dissenters (most since 2016), two hawks similar to last time: Rosengreen & George who wanted rates unchanged. And a dove: Bullard, who wanted a 50bp cut. I would expect most of the street’s commentary & take away from this FOMC decision will be along the lines of them being way behind the curve, head in the clouds, etc. Trump did not waste much time laying into them ‘Jay Powell and the Federal Reserve Fail Again. No “guts,” no sense, no vision!  A terrible communicator!’

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Some additional thoughts by John Hardy, FX Strategy Head:

“Small hint that Fed addressing USD liquidity issue by dropping the IOER 30 bps, but the Fed’s policy projections saw less of a drop than the market was looking for in the dot plot forecast of Fed policy rates and the statement wording was hardly changed at all. One dovish dissenter this time (Bullard) looking for a 50 bp chop and same two hawkish dissenters looking for no change. The economic projection changes were too minor to have meaning.

Main message: so far this FOMC is very USD supportive, risk negative, precious metals negative and if Powell doesn’t ride to the rescue during the press conference with a strong message on providing liquidity, the move could deepen dramatically”

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Overall the session from a markets perspective initially had equities selling off & volatility spiking, both of which reversed towards the close. Fed fund futures initially rose before selling off. However we did pull back on gold & silver, as the front end of the US yield curve rose, and we do have a stronger US dollar coming into the Asia Thu Morning

On FX we ended with the DXY 98.56 +0.31%, EURUSD 1.1032 -0.39%, USDJPY 108.41 +0.30% & both aussie & kiwi lower at 0.55% & 0.60% to 0.6830 & 0.6316. Other big mover was USDBRL +0.83% which in addition to the less than dovish Fed had to account for a -50bp cut to 5.50% by the central bank of brazil

US 10yr bonds closed at 1.761% (in a touch) yet the front end of the curve rose. The entire curve flattened & now we are back to c. +3bp on US 2/10…

Gold & Silver spot were down -0.49% & -1.45% respectively at 1493 & 17.76.

Brent Crude 63.60 -1.47% continued to be on the back foot, we are now c. -12% from the gap open high of 71.95 on Monday… & it looks like our initial instincts (as always with risks) on Macro Monday on fading the oil spike have been quite profitable. Even if one did not catch Brent Crude above $70… $68 was very doable which would still be a c. +7% return on the shorts in under 3 days… which adjusting for leveraging & on an annualized basis is quite exceptional – typically there are a finite handful of these a quarter, yet you only need 2-3 to have an exceptional year. Key part here for the traders, is patience & persistence is key, the opportunities always come  

So what next on the Fed?

  • First lets see how the wk closes, eventually (if not quickly) the market is likely to get back to thinking this is a Fed that is going to be forced to accelerate their cuts
  • They only have two scheduled meeting left for 2019. The next meeting is Oct 30 & currently there is a 43% probability of a 25bp cut, with that rising to 66.2% for Dec 11 (with 17.5% of that being on 50bp)   
  • Liquidity issue in regards to US dollar funding is going to get more focus
  • US economic performance vs. RoW is that more key – as Powell said since the last time they met, the US economy has pretty much done what was expected, but RoW has deteriorated more

Today:

  • AU: Jobs data, always a potential big mover
  • NZ: 2Q GDP 2.0%e 2.5%p out early Asia Thu Morning
  • US: Philly Fed Mfg. Index, CA, Wkly Jobs data, Existing Home Sales
  • Central Banks: Rate decisions out of Japan, Switzerland & the United Kingdom (no hard views from KVP)

Other:

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