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While investors are showing caution ahead of the Federal Reserve’s rate announcement and commentary, risk weighted assets and oil remain on solid ground as the market bides it’s time for direction from the Fed. Starting off in Asia, markets are muddled as Chinese and Japanese equities post gains while both the yen and Chinese yuan have slipped against the greenback as the BoJ turned negative on its outlook for the Japanese economy.  Contrasting that, it looks that for now at least a lot of the fears surrounding the potential for financial calamity in the Chinese economy have dissipated as analysts at Standard and Poor’s have shown confidence in the ability of policy makers to maintain stability. Commodity pricing has not reflected the same level of confidence, with oil prices up while base metals have slid taking the Kiwi and Aussie dollars along for the ride as they both show signs of weaknesses versus the greenback.

Turning to Europe, the story is much the same, as pan-European equities and Brent crude both show signs of life while European currencies put in a mixed performance.   Most notable has been a relatively lacklustre performance of the pound sterling, with it down against the bulk of its counterparts despite solid wage and employment data out of the UK. Looking to the continent, after the ECB’s shocking move in favour of expansive quantitative easing, the euro has stabilised showing little movement against its non-European counterparts as bond yields sink further into negative territory.

Ahead of what is set to be an eventful North American session, equity futures on the S&P are showing red signalling that the optimism seen in Asia and Europe has yet to make its way across the Atlantic.   With inflation, employment and wage data all coming in stronger than expected for the United States a long with stabilising global financial conditions the stage is set for an eventful reaction to the Federal Reserve’s policy announcement later this morning.   With the market taking a decidedly dovish stance towards the prospect of future rate rises on the part of the Fed, the increase in inflation stateside certainly raises the prospect that the market may be caught off side if Dr. Yellen’s commentary comes in more hawkish than expected.   Outside of the Fed, the US dollar is largely trading sideways against the majority of its crosses with notable gains against the yen and pound sterling pushing the overall value of the dollar index higher. That said, with the Federal Reserve announcement on the docket for later this morning everything is subject to change.

Further reading:

US core inflation beats with 2.3% – USD strengthens

UK wages rise 2.1% – GBP/USD attempts a recovery