Investor sentiment around the globe is varied this morning, as Asian equities sympathized with the selling pressure felt on Wall Street in the afternoon of yesterday’s session. Whether it was the poor German industrial output numbers, or the IMF downgrade to world GDP growth for 2015 that was the straw that broke the camel’s back, a late day wash-out in North America carried over to the Asian session where the Nikkei closed down by 1.19%. The weakness in the Japanese equity index was despite the fact the Yen gave back some of its conquered territory after two sturdy sessions against the greenback, with the USDJPY pair inching its way back into the mid-108s. With the Federal Reserve getting closer to initiating its tightening cycle, it appears as if the market is becoming less immune to poor global economic data, knowing that the proverbial “punch-bowl” will not be left out for long.
Accordingly, we will get more analysis into the FOMC’s decision making with the release of the minutes from the last policy meeting that are due to be released at 14:00EST, with participants looking for clarity around the time period defined as ‘considerable’ between when asset purchases end and interest rates see their first hike. Bill Dudley has been on the speaking circuit over the past few days and has been tailoring his remarks to suggest the first rise in rates would be in mid-2015, characterizing that time period as ‘reasonable’ given the incoming data. Dudley in the past has tried to play down his forecasts by highlighting his wide confidence intervals, though we note that his and Yellen’s more cautious views tend to get played down in the FOMC minutes. The arguments from some of the more hawkish Fed Presidents tend to get more air time because of volume instead of weight, and thus we caution today’s release could be interpreted by market participants as more hawkish, without truly reflecting policy shift.
Heading into the North American open, equity futures are licking their wounds from yesterday and have managed to bandage up some of the more disastrous holes. The subsequent rebound in prices has thus far been feeble, though the supportive bid tone has been sufficient to telegraph a green open once the bell rings. Commodity prices have been unable to halt the downward spiral, pushed lower overnight with disappointing Chinese purchasing manager numbers, with the Service PMI reading slumping to 53.5 from 54.1 in August. Front-month WTI is changing hands near lows not seen since April of last year, giving up on the $90 handle after yesterday’s API crude oil inventories showed a larger build than expected, with Texas Teas now trading sub-$88 at the time of writing. The commodity-currency bloc is struggling as a result, though the Loonie has managed to pivot in the high-1.11s and not give up too much ground from yesterday after a better than expected reading on housing starts in September helped blunt some of the pain surrounding the softness in commodities and firmer treasury yields in the US. With not much on the docket until the FOMC minutes are released later this afternoon, it is likely position jockeying ahead of the publication will drive broader market sentiment, though it will be unlikely to see dollar bulls give up too much ground before the minutes are parsed by participants.
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