Mixed Fed minutes signals

Fed’s July recalibration

The July Federal Reserve minutes had perhaps confirmed what the market already know, with most Fed members seeing the July meeting ease ‘as part of a recalibration of the stance of the policy’, or ‘mid-cycle adjustment’.

One would recall that the abovementioned item had been the key item that ignited the hawkish perception following the July meeting. The motivation behind this classification of the move, it seems, had been the intention to leave room for adjustments rather than other deep-seated bullish view on the economy with the minutes noting the Fed’s reluctance to have the rate cut be perceived as ‘following a pre-set course’. This is perhaps a consolation for equity market bulls alongside the reflection that ‘a couple’ of members had preferred deeper 50 basis point cut. Moreover, this insurance cut had been underpinned by the perception of many of the risks ‘judged to be weighing on the economy’, and such risks including that of the US-China trade tensions had certainly escalated since to reinforce the expectation of another 25-basis point cut in September.

That said, given the backdated minutes, it is perhaps no surprise seeing the lack of reactions in the markets overnight. The latest in the flurry of comments on US-China trade from President Donald Trump had been the sense that the two countries will ‘probably’ establish a deal, aiding equity price gains. Focusing ahead to the Jackson Hole symposium which commences in the Thursday US session, one would perhaps have more from Fed speakers to digest. The reinforcement of the focus on ‘implications of incoming data for the outlook’, however, may mean that Fed members could still take a relatively conservative stance in guidance, one to watch for any disappointment for the market. In turn, for the US dollar index which had picked up, the short-term bias this week remains one for further upsides.

Source: IG Charts

Asia open

Muted movements, albeit towards the positive, are expected for Asia markets going into the Thursday session. As told above, watch for any disappointments that may arise from less dovish than expected perceptions of the Fed for markets going into the end of the week. While most of the regional indices looks to remain in a narrow-range trade, the Hong Kong Hang Seng Index sits at risks of its 50-day moving average (DMA) sinking below its 200-DMA, a death cross on the form. One to beware of acceleration of bearishness within the market. A series of preliminary August manufacturing PMIs will be released in the day across advanced economies, while Bank Indonesia meets with no changes to rates expected.

Yesterday: S&P 500 +0.82%; DJIA +0.93%; DAX +1.30%; FTSE +1.11