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Asia morning update - expectedly dovish

January’s Fed minutes arrived dovish as expected and perhaps packed little new insights to excite markets, though expect Asia markets to stay supported with a muted start to the day.

Wall Street locked on to the gains post the Fed minutes release, seeing the dovish views once again transpiring. A hesitance for further rate hikes for 2019 in light of the uncertainties underpinned the ‘patient’ view while the broad consensus for ending the balance sheet run-off this year had been noted, perhaps the two key points to note from the minutes. Still, the anticipation for perhaps more details on the timing and plan for the ending of the balance sheet reduction saw it being absent, one to keep us waiting and watching.

The broadly dovish stance had notably been backed by the Fed seeing increasing downside risks to growth, though the Fed remains flexible towards any changes. These concerns had evidently been shared by the market prior to the Fed’s progressively dovish turn since December 2018. One would recall Fed Powell seeing interest rates ‘just below’ neutral in late November 2018 and that the Fed had previously expected the balance sheet reduction to take an amount significantly smaller than what we may now be looking towards. This was prior to the fluctuating data indicators coming out of the US. As channelled in the minutes, the Fed’s data-dependency stays and the ‘patient’ outlook towards monetary policy may well be altered should the uncertainties abate. ‘Patient’ as a word here seems to be the cue in future statements to scrutinize.

With the lack of fresh details as to how the Fed will likely taper their balance sheet run-off and how much further interest rates could go in the current cycle despite the pause, US markets mostly kept to the gains on hand. The likes of the Dow and the S&P 500 index repeated the mild gains from Tuesday, up 0.18% and 0.24% respectively overnight. The greenback meanwhile saw some sell-the-news phenomenon, bouncing back after the release. USD index hanging around 96.50 levels.

EUR/USD little changed at around $1.1340. A brief swing above the $1.1350 resistance was noted with the arrival of better-than-expected February consumer confidence data from the eurozone. Amid the geopolitical concerns still swivelling Brexit, look to PMI releases across the eurozone and US where the differentials could again make for EUR/USD fluctuations. Risks to the downside with worsening eurozone manufacturing PMI reading.

Likewise for Asia markets, the lack of fresh details from the minutes leaves the region to await further US-China developments. Having rallied on Wednesday from the various verbal affirmations by President Donald Trump, one should not be surprised for more of these just as what we have seen last week. For the day ahead, however, look to the likes of Bank Indonesia’s monetary policy decision though no changes are expected. The local Straits Times Index, alongside the HSI, had notably been testing resistances that could use further positive developments out of the talks.

Yesterday: S&P 500 +0.18%; DJIA +0.24%; DAX +0.82%; FTSE +0.69%

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