Fed dovish support for Asia markets

Prepping the market for a Fed cut

The biggest takeaway from the latest Federal Reserve meeting had perhaps been the readiness of the Fed to act to support economic growth. While this is not something novel, thus attributing to the muted reaction seen across Wall Street, it does conform to the Fed’s ritual of prepping the market prior to moves and thus the broadly positive reaction within equity markets.

To recap on the meeting’s conclusion, the Fed’s meeting statement had highlighted that the ‘uncertainties about the outlook had increased’ while also remarking that the Fed ‘will act as appropriate to sustain the expansion’. Fed chair Jerome Powell had also alluded to the fact that ‘the case for somewhat more accommodative policy has strengthened’. In terms of projections, the Fed had lowered their median core PCE inflation outlook from the previous 2.0% to 1.8% for 2019 though moderately improving their view on unemployment. GDP forecasts were left unchanged for 2019 at 2.1%, with slight improvement for 2020’s median forecast to 2.0%. Notably, the dot plot had reflected an unchanged mid-point for end-2019 rates at the current level, though a majority of the eight who favoured easing had reflected an expectation of 50 basis points.

On prices, both the Dow and the S&P 500 index had chalked up mild gains by the end of the Wednesday session. Treasury yields slipped with US 10-year yields sliding to 2.03% levels into the end of the session. This latest surge places the comprehensive S&P 500 index close to its earlier all-time high into end-April, one to watch. It would be the G20 Trump-Xi meeting next that may have the potential to either carry the index back to where it had been or flop it once again given all the positive expectations getting priced in at present. Meanwhile, the US dollar had likewise traded softer post-meeting though the uptrend for the US dollar index remaining intact. Seeing the ascending triangle pattern for the US dollar index, it may be some time before we find out in which direction the breakout takes place. With the Fed’s latest shift, the bias may now be on the lower end.

Asia open

With one of the biggest fears ahead of the Fed meeting being the market disappointed by the lack of dovishness from the Fed, the latest June meeting had certainly proved to be a perfect balance. In turn, this is likewise due to evoke little reaction from Asia markets post meeting, though nevertheless availing some support with the expectations for Fed cuts to come along.

A string of central bank meetings in Asia remains in tow including the likes of the Bank of Japan (BoJ), Bank Indonesia (BI) and Bangko Sentral ng Pilipinas (BSP). No changes are expected for the BoJ though guidance will be watched here. USD/JPY (大口） trading below the $108 handle at present following the greenback weakness and remains more likely to be risk-sentiment driven with little influence expected from the domestic central bank. Watch for potential moves from both BI and the BSP.

Yesterday: S&P 500 +0.30%; DJIA +0.15%; DAX -0.19%; FTSE -0.53%