Original insights into market moving news

[PODCAST] European Open Rundown 17th September 2020

  • FOMC left rates on hold as expected, sees rates unchanged at least through 2023 and maintained the asset purchase schedule
  • The Committee will aim to achieve inflation moderately above 2% for some time so that inflation averages 2% over time
  • Asian equity markets traded subdued as the soured mood rolled over into the region from the uninspiring finish on Wall St
  • Reports suggested that Oracle’s TikTok bid left US security concerns unaddressed
  • BoJ kept policy settings unchanged and upped its assessment of the economy, output and exports as expected
  • The USD was choppy in the aftermath of the FOMC, although the DXY has since strengthened and temporarily broke above 93.50
  • Looking ahead, highlights include EZ CPI, BoE & SARB policy announcements, US building permits, weekly jobs, ECB's de Guindos, supply today from Spain and France


FOMC left FFR unchanged at 0.00%-0.25% as expected and sees rates unchanged at least through 2023. FOMC also kept IOER unchanged at 0.10%, maintained the asset purchase schedule and stated it expects to maintain current FFR until the labour market has reached levels consistent with assessments of maximum employment and inflation has risen to 2% and on track to exceed that for some time.

FOMC stated that the Committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run and that with inflation running persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2% for some time so that inflation averages 2% over time and longer-term inflation expectations remain well anchored at 2%, while the Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved. Fed seeks to achieve inflation moderately above 2% for some time so it averages 2% and reiterated that the path of the economy will continue to depend significantly on the course of COVID-19. Furthermore, Fed’s Kaplan and Kashkari voted against the language used in the statement as Kaplan prefers that the FOMC retain greater policy rate flexibility and Kashkari prefers the Committee to keep rates unchanged until core inflation has reached 2%on a sustained basis.

Fed maintained projection for FFR to remain at 0.1% in 2020, 2021 and 2022 which was inline with the June forecasts, while the Fed median view was for rates to stay at 0.1% in 2023 but there were four dots above 0%, and it kept its forecast for rates in the Longer Run at 2.5%. Fed raised its Real GDP forecast for this year to -3.7% (Prev. -6.5%) but lowered forecasts for 2021 and 2022 Real GDP, while it lowered Unemployment Rate projections and increased PCE Inflation estimates for 2020-2022 although do not see PCE prices rising to its 2% target until 2023.

Fed Chair Powell stated that household spending has picked up from depressed Q2 levels, recovering three-quarters of the earlier decline and there are signs of improvement in business investment. Fed Chair Powell expects the economy to recover quickly now but slack in the economy later will put downward pressure on inflation, while he responded that he believes guidance adopted today is powerful when questioned on forward guidance and that effectively we're saying that rates will be very low until we're far along in the recovery. Furthermore, he noted that the Fed is not out of ammo and will remain highly accommodative until the expansion is well along and have a moderate overshoot of inflation for some time, but also noted that the lack of fiscal aid will eventually hurt the economy which remains a downside risk.


US COVID cases +34,240 (prev. +34,597) and deaths +961 (prev. +387), while a major newswire tally stated that US cases increased by at least 39,332 to a total of 6.65mln and deaths rose at least 1,147 to a total of 196.9k. (Newswires)

US President Trump said he thinks the distribution of a vaccine could begin in October or a little bit later and that the US could distribute at least 100mln doses by year-end, while he thinks CDC's Redfield made a mistake when he stated that the vaccine would not be widely available till next summer and commented that one person on the White House staff tested positive for COVID-19. (Newswires) US CDC Director Redfield said it will take roughly 6-9 months from regulatory clearance to get enough Americans immunised for a vaccination to be effective. Furthermore, CDC Director Redfield said he sees vaccines for the public probable in Q2 or Q3 in 2021. (Newswires) NIH's Fauci said it will be difficult for everyone to be vaccinated by April and suggested it would be likely middle to end of next year. (Newswires)

Eli Lilly (LLY) announced proof of concept data for neutralizing antibody LY-COV555 in COVID-19 outpatient setting, while it added that LY-COV555 was well tolerated across all doses with no serious adverse events reported. Furthermore, the primary endpoint of viral load change from baseline at day 11, was met by one of three doses and it intends to publish results of interim analysis in peer-reviewed journal, as well as discuss appropriate next steps with global regulators. (Newswires)

Italy could have the first shots of AstraZeneca (AZN LN) vaccine by the end of November 2020, according to IRBM Biotech Company. (Newswires)


Asian equity markets traded subdued as the soured mood rolled over into the region following the uninspiring finish on Wall St where the major indices whipsawed post-FOMC. At the meeting, the Fed kept rates at 0.00%-0.25% as expected, left its asset purchase schedule and median FFR dot plot forecasts unchanged, while it guided that it expects to maintain an accommodative stance of monetary policy until its goals of maximum employment and inflation at the rate of 2% over the longer run are achieved, which initially boosted risk appetite on the prospects that rates are to remain low for the years ahead. However, stocks then faltered during Fed Chair Powell’s press conference, where despite there being no specific trigger headline, he did suggest the pace of the recovery would slow and that the lack of fiscal aid will eventually hurt the economy, while the dot plots had earlier showed that some policymakers viewed a lift off in 2022 and 2023. As such, ASX 200 (-1.1%) and Nikkei 225 (-0.7%) were weaker as tech stocks succumbed to the underperformance of the sector stateside and with Tokyo trade lacklustre due to adverse currency effects, as well as tentativeness amid the BoJ policy announcement which failed to spark off any major fireworks as the central bank kept policy settings unchanged and although it upped its assessment of the economy, exports and output, this was widely anticipated. Hang Seng (-1.9%) and Shanghai Comp. (-1.0%) were also negative after the PBoC drained liquidity from the interbank market and as participants await TikTok’s fate with President Trump to review the deal on Thursday morning but noted that he doesn't like that the US part of TikTok would not be sold to Oracle, while reports had also suggested that the proposal did not address US government security concerns. Finally, 10yr JGBs were flat with price action stuck once again at the 152.00 focal point and with a non-committal tone seen after the BoJ policy announcement proved to be a damp squib.

PBoC injected CNY 110bln via 7-day reverse repos at a rate of 2.20% for a net daily drain of CNY 30bln. (Newswires) PBoC sets USD/CNY mid-point at 6.7675 vs. Exp. 6.7668 (Prev. 6.7825)

US President Trump said the TikTok deal needs to be 100% as it relates to national security and that he will review  the report regarding TikTok on Thursday morning, while he doesn't like that the US part of TikTok would not be sold to Oracle and was told there is no legal path to ensure money from deal goes to US government. (Newswires) NEC Director Kudlow said US is in a deep review process of TikTok, while he added that security and ownership are important to the President when it comes to the deal, while other reports suggested that Oracle’s TikTok bid left US security concerns unaddressed. (Newswires)

Oracle (ORCL) would handle all TikTok user data and would oversee TikTok US technical operation, while it could check source code to disable back doors under the proposal, according to sources. Furthermore, sources added that the board of directors would be approved by US government and ByteDance would still have visibility into TikTok's algorithm. (Newswires)

BoJ kept monetary policy settings unchanged as expected with rates held at -0.1% and QQE with Yield Curve Control maintained to flexibly target 10yr JGB yields at around 0%, while it maintained its forward guidance and the decision on YCC was made by 8-1 vote as Kataoka dissented as usual. BoJ revised higher its assessment on Japan’s economy, exports and output in which it stated that Japan’s economy remains in a severe state but appears to pick up and that both exports and output are picking up. Furthermore, it stated that the economy is expected to improve as a trend due to easy monetary conditions and the effect of government stimulus measures but noted that CPI is likely to hover in negative territory for the time-being. (Newswires)


UK PM Johnson agreed to compromise on Internal Market Bill, according to a Business Insider journalist who added that it is worth remembering that as far as the EU is concerned, even with these amendments, the bill still breaks international law. (Business Insider)

In Brexit talks, the EU has touted the option of instating different fishing rights around the Channel Islands to those around the UK in a move that would grant more access to French and Dutch vessels. UK government sources have insisted that they wish to retain control of waters around the islands. (Telegraph) 

US Secretary of State Pompeo said talks on a bilateral trade agreement between the UK and the US were on track for "successful conclusion before too long". (FT) US Democratic Presidential Candidate Biden stressed that any trade deal between US and UK must be contingent upon respect of the Good Friday Agreement and preventing the return of a hard border. (Newswires)


The USD was choppy in the aftermath of the FOMC, although the DXY has since strengthened and temporarily broke above the 93.50 level amid the broad risk aversion. This has weighed on the greenback’s major counterparts in which EUR/USD slipped through near-term support at the 1.1800 level and GBP/USD also wiped out yesterday’s gains from its brief incursion into the 1.3000 territory that had been spurred by reports of UK PM Johnson nearing a potential compromise with Brexit rebels on amendments to the Internal Market Bill, which nonetheless would still break international law. USD/JPY remained lacklustre but has nursed some recent losses to reclaim the 105.00 handle and antipodeans were weaker despite the narrower than expected contraction in New Zealand Q2 GDP which confirmed the nation’s first technical recession in a decade and with AUD/USD only briefly supported by a blockbuster jobs release in Australia, with their respective currencies pressured due to their high-beta statuses. CNH also kowtowed to the USD strength and gave back some of the recent spoils that had pushed China’s currency on course for its largest quarterly gain on record. 

Australian Employment Change (Aug) 111.0k vs. Exp. -50.0k (Prev. 114.7k) Australian Unemployment Rate (Aug) 6.8% vs. Exp. 7.7% (Prev. 7.5%) Australian Participation Rate (Aug) 64.8% vs. Exp. 64.7% (Prev. 64.7%)

New Zealand GDP (Q2) Q/Q -12.2% vs. Exp. -12.8% (Prev. -1.6%, Rev. -1.4%) New Zealand GDP (Q2) Y/Y -12.4% vs. Exp. -13.3% (Prev. -0.2%, Rev. -0.1%) New Zealand GDP Annual Average (Q2) -2.0% vs. Exp. -2.3% (Prev. 1.5%)

Brazil Central Bank maintained the Selic rate at 2.00% as expected, through unanimous decision and said it does not intend to reduce monetary stimulus until inflation expectations are sufficiently close to target over the policy horizon. (Newswires)


WTI crude futures slipped below the USD 40/bbl level alongside the broad risk aversion in the aftermath of the post-FOMC disappointment, which saw prices retrace some of the gains from this week’s bullish inventory reports, while focus for the complex now shifts to today’s JMMC where reports noted OPEC will not be discussing deeper cuts despite the recent fall in prices. Elsewhere, gold prices were pressured by the broad USD-strength and fell beneath the USD 1950/oz level and copper also declined due to the soured risk tone and weakness across the complex which saw Dalian iron ore futures drop over 3% shortly after the open.

BSEE estimated Hurricane sally cut 27.5% (prev. 26.9%) of oil production in Gulf of Mexico and Natgas shut-ins were forecast at 29.7% (prev. 28%). (Newswires)

Israel is to reportedly propose the construction of a Saudi-Israel land pipeline for oil and distillates to then export to Europe. Sources state that there have been high level meetings on the matter. Such a plan would be "cheaper and safer for the Gulf states by bypassing dangerous sea routes and the costly Suez Canal." (Globes)


US Secretary of State Pompeo said the US will return to the UN next week to reimpose sanctions on Iran. (Newswires)

Senior US State Department official Keith Krach will travel to Taiwan to attend a weekend memorial service for its former President Lee Teng-Hui. There were also separate reports that the US government confirmed it will sell USD 7bln of arms to Taiwan including cruise missiles and drones, while 2 Chinese PLA aircrafts were warned off after entering Taiwan's air defence identification zone, ahead of the US official's visit to Taiwan. (Newswires/SCMP)


Treasuries steepened by a couple of bps into the T-Note settlement after the latest FOMC decision. By settlement, 2s unch. at 14bps, 10s +1bps at 69bps, 30s +2bps at 145bps; volumes were still relatively low even after the rate decision. There had been some marginal duration strength after US retail sales disappointed, but that faded after the equity cash open saw stocks rise and supported by a blowout NAHB survey. The market traded sideways up until the FOMC statement, which came in pretty much as expected with dot plot showing rates on hold for the foreseeable future and similar inflation targeting language as officials have mentioned before, although the statement reiterated that asset purchases would continue as they were, with no mention of any tilt to longer maturity asset purchases. The lack of any new dovish/more accommodative stances saw the curve steepen modestly, and again in the Powell Q&A when he avoided answering with clarity on any potential changes to its asset purchases, seeing the 10-year yield briefly pop its head above the 70bps mark before moving back under the support level. More broadly, it is worth highlighting the lack of volumes in the rates market today, especially for a Fed day, making it somewhat harder to gauge the consensus takeaway for the market. T-note (Z0) futures settled 1+ ticks lower at 139-14+.

US President Trump said he supports something like a plan for coronavirus relief proposed by the bipartisan group, adding “we are getting closer to a deal on coronavirus relief”. (Newswires)

White House is reportedly strongly signalling that it's willing to agree to a compromise USD 1.52trln COVID-19 stimulus proposal and that Senate Republicans should go along in order to seal a deal in the next week to 10 days. (Newswires)

US House Speaker Pelosi and Senate Minority Leader Schumer have invited the White House back to the table but stated that GOP's won’t meet them half-way, according to Politico's Sherman. (Twitter)

US President Trump's administration is considering at least USD 300mln cash aid to oil refiners that are denied 2019 biofuel waivers, according to sources. (Newswires)