Asia morning update - Fed patience

On hold for longer

The first Federal Open Market Committee (FOMC) meeting of the year saw the Fed going down the dovish end, providing support for markets. Notable changes to the Fed’s statement had been the elimination of the ‘further gradual increases’ view towards rate hikes and an additional portion highlighting that the Fed is ‘prepared to adjust any of the details for completing balance sheet normalization’. Both of which, evidently served to calm the nerves of markets that had been exposed to the Fed-induced turbulence since at least October last year and supportive for investors still jittery with regards to the impact of tightening conditions upon the economy.

While it remains to be seen if we are indeed at the end of the rate hike, considering the lack of insights to several indicators and the uncertainties that persists, the market had evidently lifted the no-changes perception towards Fed rates this year. According to the CME Fedwatch tool computation based on Fed funds futures, this figure currently sits at 78.2%, up 6.2% from before the meeting.

Consequently, the effect from the cautious Fed view had cascaded through the various asset classes. Both the Dow and the S&P 500 index edged higher in consolidation. The S&P 500 index saw gains cutting across all sectors, as expectedly led by the 3.03% in tech after the relief from Apple and AMD. Gains had been so widespread with even the finance sector partaking despite the slide in yields. US 10-year treasury yields down to a two-week low, likewise with the US dollar index. Prices can be seen idling at support levels for the latter, watching a potential break as we await further data updates. While the ADP employment numbers pre-empts positive NFP figures, the wait for the growth releases continues.

Asia open

A rosy backdrop provided by Wall Street and the relatively benign Chinese PMI reading boosts Asia markets this Thursday. The first PMI reading out of China saw January’s official manufacturing PMI surprising slightly at 49.5 against the consensus 49.3. This rises from the 49.4 in December’s reading, though remaining in contraction territory. As far as the Australia ASX 200 had suggested, this proved supportive as the index turned higher with the release, one to watch for effect across the rest of the region as well.

Notably, we have had another positive earnings story this morning with Facebook’s surprise on earnings and revenue beat while the stronger engagement levels also paved the way for the after-hours jump of 11.5%. Microsoft while slightly below consensus had kept the post market decline benign. Altogether this had kept the US futures rather flat. Samsung electronics posted a disappointing Q4 and warned of weaker earnings into 2019 though this had not derailed the KOSPI as yet.

Look to more tier-2 releases out of Asia ahead of earnings in the US including Amazon for today.

Yesterday: S&P 500 +1.55%; DJIA +1.77%; DAX -0.33%; FTSE +1.58%