Fed in contemplation

The Fed had lowered rates as expected alongside a less dovish guidance. That said, while alongside US earnings these items provide inspiration, the latest Chinese PMI disappointment looks to a mixed situation for Asia markets.

The Federal Reserve had cut rates by 25 basis points to 1.5% to 1.75% as expected, though amid the expectations for a hawkish cut, the Fed appears to have come in short. Through dropping the line in pledging to ‘act as appropriate to sustain the expansion’ and the comment from Fed chair Jerome Powell stating that the monetary policy is in a ‘good place’, the Fed had signalled their intention for a pause as widely anticipated. That said, the Fed had committed to continue assessing ‘the appropriate path of the target range for the federal funds rate’ that seems to reflect their contemplation.

Indeed, with the ongoing geopolitical issues taking a positive turn from US-China trade to Brexit, this allows for some breathing room for policy support. The situation, however, remains a delicate balance particularly for the former seeing the twist and turns thus far. The latest update being the cancellation of the APEC summit that builds uncertainty as to whether the Phase One deal signing can continue to pass as smoothly. Equity markets can be seen unperturbed thus far, and as for the US dollar index, prices had continued to trek lower into Thursday morning here in Asia post the Fed update. This was despite the latest Q3 GDP surprising on the upside at 1.9% against the 1.6% consensus. Consumer spending was shown to be a resilient component of GDP while the same trend of weak business spending sustains. The US dollar index can be seen back at support, attempting a break lower. A dip here could open up room further on the downside and it will be the likes of US non-farm payrolls, ones to watch into the end of the week as the Fed heighten their focus on economic performance to guide their rate decisions henceforth.

Source: IG Charts

China’s manufacturing PMI disappoints

Notably, this morning saw China’s official manufacturing PMI disappointing with a reading of 49.3 against the consensus of an unchanged 49.8. This marks a sixth consecutive month in contraction territory and the lowest reading registered since February, continuing to paint the slowdown picture into Q4 for China. Of the components, both new orders and new export orders were noted to deteriorate in contraction and could be items to garner the authorities’ attention. While we await the private Caixin gauge’s confirmation of the decline trend into Friday, this throws a spanner in the works against the Fed’s latest support. USD/CNH saw a very slight reaction post release compared to USD/JPY which had taken a dip to $108.70 levels from the earlier $108.80 trade.

Look ahead to the Bank of Japan meeting conclusion, though diminished expectations for the BoJ to move at present appears to be the case.

Yesterday: S&P 500 +0.33%; DJIA +0.43%; DAX -0.23%; FTSE -0.34

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