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Fed kept Federal Funds Rate target unchanged at 2.00-2.25% as expected and continued to point to “further gradual increases” in rates Asian equity markets traded lower following a lacklustre lead from Wall St where the mid-term stock rally stalled EU is said to want a customs border in the Irish Sea in the event of a no-deal Brexit. However, the report noted that PM May said she would never allow this to occur Looking ahead, highlights include UK GDP, industrial and manufacturing production, US PPI, Baker Hughes, Fed’s Williams, Harker, Quarles, BoE’s Haldane, Tria to meet with Centeno FOMC
– Fed kept Federal Funds Rate target unchanged at 2.00-2.25% as expected.
– Fed said it expects further gradual increases in Fed Funds Rate will be consistent with sustained economic expansion, strong job market and inflation target, while it also commented that economic activity is rising at strong rate and that growth of business fixed investment has moderated from its rapid pace earlier in the year.
– The Fed reiterated near-term risks to economy appear roughly balanced, while it noted that inflation remains near 2% and long-term inflation expectations are little changed.
– Markets were relatively muted with mild USD firmness and little change in US yields.
Asian equity markets traded lower following a lacklustre lead from Wall St where the mid-term stock rally stalled as focus shifted to the FOMC. ASX 200 (-0.1%) and Nikkei 225 (-1.0%) were lower with energy stocks pressured after a continued slump in oil prices and as soft earnings results also clouded over Tokyo sentiment. Hang Seng (-2.5%) and Shanghai Comp. (-1.1%) were the worst hit in the region as tech and energy stocks lagged, while continued PBoC liquidity inaction and inline inflation data proved to be inconclusive for sentiment. Finally, 10yr JGBs were flat with prices uneventful as the pressure from the recent losses in T-notes was counterbalanced by the risk averse tone and BoJ’s presence in the market for JPY 980bln of JGBs across the curve.
PBoC skipped open market operations and are net neutral for the week vs. Prev. CNY 490bln net drain last week. (Newswires)
PBoC set CNY mid-point at 6.9329 (Prev. 6.9163)
Chinese CPI (Oct) Y/Y 2.5% vs. Exp. 2.5% (Prev. 2.5%). (Newswires)
Chinese PPI (Oct) Y/Y 3.3% vs. Exp. 3.3% (Prev. 3.6%)
A senior UK government source told Press Association that reports a Brexit deal could come in next few days should be taken with “a very large pinch of salt”. (Newswires)
EU is said to want a customs border in the Irish Sea in the event of a no-deal Brexit, according to reports which cited a letter from PM May. However, the letter noted that PM May said she would never allow this to occur, while a spokesperson also said the government will not agree to anything that results to a hard border on Ireland, nor will it accept a division of the UK into 2 customs territories. (Times)
EU is reportedly demanding certain fishing rights in UK waters as price for an all-UK divorce deal to solve the Irish backstop issue. (Telegraph)
In FX markets, the DXY held firm near post-FOMC highs as expectations remained unwavered for a December rate hike. The greenback had already strengthened in the hours heading into the Fed announcement, which then persisted following the release. As such, EUR/USD and GBP/USD languished near the prior day’s lows, while antipodeans were softer with AUD failing to benefit from the slight upward revisions to growth and CPI forecasts in the RBA’s SOMP, as the central bank also noted a potential impact to the Asia region from the US-China trade dispute. Elsewhere, reports that a US Federal judge blocked the Keystone XL Pipeline only briefly pressured CAD, while the risk averse tone spurred flows into safe-haven JPY which weighed on JPY-crosses and although USD/JPY gave up the 114.00 handle, losses in the pair were stemmed by the USD strength.
RBA Statement on Monetary Policy stated board does not see a strong case for a change in rates in the near-term, while it added outlook for inflation and unemployment mean higher rates are likely at some point. RBA stated that trade-weighted AUD is contained by offsetting forces and that many Asian economies could be impacted by US-China trade dispute. In terms of forecasts, RBA raised 2018 average GDP growth forecast to 3.50% from 3.25% and raised it underlying inflation forecast to 2.25% from 2.00% for December 2019. (Newswires)
Commodities were subdued overnight with WTI firmly below USD 61.00/bbl following a continued slump in prices due to a firmer greenback and expectations of increased OPEC shipments this month, while participants also look ahead to the upcoming meeting between producers including OPEC ministers this Sunday for any further output cut measures. Elsewhere, gold marginally extended on losses post-FOMC as expectations remain for the Fed to hike next month, while copper also weakened amid the broad risk-averse tone.
OPEC oil shipments will rise by 670k BPD to 25.79mln BPD in the four weeks to Nov. 24 vs. period to Oct. 27, according to data from tanker tracker Oil Movements. (Newswires)
US Federal judge blocked Keystone XL Pipeline stating that US administration’s justification for the approval was incomplete, while the judge added that the State Department failed to evaluate climate impact, oil spills and cultural resources. (Newswires)
Saudi Arabia’s top government-funded think tank is reportedly studying the potential impact of a break up of OPEC on oil markets. (WSJ)
North Korea cancelled a meeting scheduled with the US after learning US President Trump will not attend, while US Ambassador to the UN Haley said North Korea postponed meeting with US Secretary of State Pompeo because they weren’t prepared. Furthermore, Haley commented that Russia wants to lift banking restriction on North Korea but the US will not let that happen. (Newswires) Reports thereafter suggested that North Korea and US are rescheduling there postponed talks. (Yonhap)
US issued fresh Russia-related sanctions on 8 entities and 1 individual regarding Russia’s annexation of Crimea. (Newswires)
Treasuries were lower once again for the session as mid-term election risk faded and as the FOMC kept rates unchanged as expected; the yield curve flattened after the central bank highlighted strong economic activity and with no mention on the recent market volatility. In pre-Fed trade the 10yr yield hit 3.223%, the highest level since May 2011. Most of the action was in the belly of the curve were yields were higher by c.3bps at settlement. 2s6730s and 5s30s were narrower by c.3bps. US T-note futures (Z8) settled 6+ ticks lower at 117-26.
Trump lawyer Rudy Giuliani and Chris Christie are said to be under consideration for Attorney General. (CBS)
Mexico Economy Minister Guajardo said new USMCA trade agreement will be signed at the G20 on November 30th. (Newswires)