Asia markets find support with Fed rate cut

As expected, the Fed delivered a second cut of the year, one to lift Asia markets, although the FX market look less than enthused with the mixed take on the outlook for interest rates.

Fed sees no further cuts for 2019

Wall Street broadly ended Wednesday higher, albeit mildly, post the latest 25 basis point cut to policy rate. Likewise, with Asia markets, we are expecting most of the regions to come online with moderate gains with the Fed support.

For the FX market, it had perhaps been a whole different story here, seeing the greenback strengthening post-meeting, somewhat in disappointment. As suspected, there perhaps is no easy way to please the market given the mixed situation faced by the Fed. Dismaying the market had been Fed members’ latest lift in expectations for growth, seeing 2019 GDP rising by 2.2%, which is 0.1% higher than surveyed in June. Meanwhile, the Fed’s dot plot had also suggested the Fed seeing no further cuts for 2019 and 2020 even as members remain divided on the outlook. Not to mention, even the rate cut this week had seen polarised dissenters ranging Fed George and Fed Rosengren for no cuts, and Fed Bullard for a greater 50bps cut. Fed Powell had pulled off another fine balancing act in his press conference, reflecting the view on resilient economic conditions while retaining the flexibility option, largely suggesting that we remain data and situation dependent.

As far as the market is concerned, the CME FedWatch tool had only reflected a stronger conviction for another Fed cut by year-end. The disparity between the market and the Fed’s view would thus mean that we could continue to see the greenback and equity markets being sensitive towards the abovementioned data and situation updates into year-end. Look to Asia currencies to remain weak against the greenback into the session.

Source: Bloomberg

Central bank watch continues

The slew of central bank meetings continues including the Bank of Japan and Bank Indonesia in the day, though both are not expected to introduce any changes to policy rates this meeting. Even as the easing bias is expected to continue, both the BoJ and BI are expected to keep the ammunition for further down the road. As previously highlighted, with the Japanese yen having once again depreciated into September, this provides room for the BoJ to delay any imminent moves. Look nevertheless to the rhetoric from these central banks. Bank of England announces their meeting conclusion later in the day with no changes expected as well.

Yesterday: S&P 500 +0.03%; DJIA +0.13%; DAX +0.14%; FTSE -0.09%

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