MORNING BRIEFING: RBA hawkish, and markets cautious ahead of FOMC meeting

What’s new:
Asia: Equity indices relatively flat this morning
FED: Markets cautious awaiting Fed’s FOMC meeting tomorrow
Australia: The RBA Chief’s hawkish comments fuel higher expectations for an RBA’s rate increase
Euro Zone: Irish debt concerns return, but Irish Government and IMF dismiss these rumours

Today:



Rates in Asia and Indices:
EURUSD: 1.3109 - 1.3034.
USDCHF: 1.0119 - 1.0082.
GBPUSD: 1.5686- 1.5638.
EURJPY: 112.29 – 111.73.
USDJPY: 85.78 – 85.64.
DowJones: 10’607.85 +0.12%
NASDAQ:  2’315.61 +0.54%
S & P 500: 1’125.59 +0.08%
Nikkei: 9’626.09 +1.23% (market closed)
Shanghai: 2'590.09 -0.33%
Gold: $ 1'284.0    
Crude Oil: $ 73.73

 
Comments:

Asian equity indices’ performance were very much flat early this morning as Japan is on holiday today and investors remain cautious ahead of the Federal Reserve’s FOMC Interest rate decision due tomorrow.

The Fed is not expected to make any changes to its policy rates; there is increased expectation that Quantitative Easing (QE) could start featuring in the Fed’s comments, to prepare the markets for future QE intervention. Given the implications this might have on the direction of the markets, investors might choose today to remain quite cautious and range bound.

If the Fed does not embark on further QE this meeting, it might be taken to imply that the probabilities of a double dip are easing and a rally could benefit riskier assets. On the other hand a move towards QE could signal concerns over future economic growth and thus risk aversion might take the lead and favour the ‘safe haven’ currencies.

In the currency markets AUD and NZD were gainers this morning. AUD was the biggest gainer, up till early this morning, up 0.73% against its major counterparts after hawkish comments from the Reserve Bank Of Australia’s Glenn Stevens. While acknowledging that a US recession, a Chinese slowdown and more market turmoil remain potential risk scenarios - Mr Stevens said that if these do not materialize a fairly robust upswing lies ahead. Mr Stevens also noted that a “fall in inflation over the past two years won’t go much further” consequently traders are seeing an increasing chance of a rate increase in the next RBA meeting.

Support still favoured the Euro this morning against most of its major counter parts, even though Friday saw Irish Debt concerns resurfacing as an Irish newspaper reported Ireland was close to calling IMF – However the Irish Government dismissed such allegation, and even the IMF said it does not foresee its assistance being needed in Ireland.

Good day,

Rudolf Muscat
Trading desk

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