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Market sentiment was modestly upbeat on Thursday with North American equities slightly higher (SPX: 0.3%, TSX: 0.2%) in the wake of Wednesday’s FOMC meeting.

Key quotes:

“Treasuries and Canadian rates were little changed on the day with both curves slightly flatter on a small selloff in 2s.”

“The USD continues to grind higher with a broad advance against G10 currencies, which saw DXY test the 95 level for the first time in two weeks. EUR (-0.8%) traded lower on reports (later confirmed) that the Italian government will set its deficit target at 2.4% for 2019, while NZD (-0.8%) declined after the RBNZ left rates on hold. Meanwhile, CAD (-0.2%) outperformed on the crosses ahead of a speech by Governor Poloz.”

What We’re Watching in Markets
 
“Friday’s PCE report will be closely watched after the rate hike. Additional focus will fall on the effective funds rate following the rate hike earlier this week, as the IOER-EFF has continued to compress.”

“Headline risk has taken over as the market has already seemed to put the Fed on the backburner. For FX, the Fed was mostly a wash, as some of the dovish and hawkish elements offset each other. The debate rests on whether the Fed moved to neutral or remains accommodative but keep in mind the endgame points to a 1% real rate. G10 likely confined to ranges and will probably need the midterms to break the gridlock.”