Asia morning update - awaiting Fed minutes

A fresh dose of confidence from President Donald Trump on trade enlivens the markets as we await the Fed minutes this Wednesday.

Source: Bloomberg

Earnings and trade propelled gains for Wall Street on the return from the market holiday this week, overruling some of the early jitters. Tuesday saw President Donald Trump's reinforcement that talks are 'going very well', adding to the cheery mood building towards hopes of an eventual resolution for the US-China trade conflict. Akin to talking it into certainty, President Donald Trump had again highlighted the fact that the March 1 deadline will not be a 'magical date' for tariffs implementation, pointing to the likelihood of an extension and supporting markets. Alongside Walmart's Q4 earnings boost to retail stocks, the Dow and the S&P 500 Index edged up 0.15% and 0.03% respectively. Nevertheless, prices can be seen holding just ahead of resistances, one to watch with the event risk of the Fed minutes up ahead.

With the first Federal Open Market Committee (FOMC) meeting of the year, the attention had shifted away from interest rates for the Fed towards their balance sheet management. Certainly, interest rates have widely been expected to hold steady with the CME FedWatch tool suggesting so via market pricing through to the end of 2018. This is in line with the Fed’s change in their January statement where we saw the removal of the ‘further gradual increases’ reference to interest rates and took ‘patient’ as the new status quo. The addition of the Fed’s balance sheet management in the statement however brings about a new paradigm in Fed policy changes. With increasing concerns about the Fed’s balance sheet run-off in the face of economic slowdown, the pressure is on the Fed to ease the pinch here. This would in turn set the likes of treasury yields and the greenback for potential further downside risks, a turn that they had already taken overnight. Watch for any further slide here. EUR/USD likewise to stay supported with the Fed release, though the eurozone consumer confidence release could pose a threat beforehand, expected to remain lacklustre.

US Dollar Basket (SD1)

The return of US market in gains and the injection of another shot of confidence from President Donald Trump on trade again serves as the recipe for Asia markets to climb once again. While we could once again be grasping at straws with the conclusion still a distance away, this is a change from the jitters that had prevailed yesterday with the reminder of the difficult issues on hand as talks commenced in Washington.

Early releases saw the likes of the Japanese trade figure and Australia wage inflation reading disappointing. Japan’s January exports declined more than expected while Australia’s wage inflation missed slightly in quarter-on-quarter terms. Following in the footsteps of Tuesday’s RBA minutes and BoJ governor Kuroda’s comments towards more accommodative stances it does look that these data serves as reinforcements for the views. Look to the Fed minutes up next.

Yesterday: S&P 500 +0.15%; DJIA +0.03%; DAX +0.09%; FTSE -0.56%


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