Original insights into market moving news

[PODCAST] European Open Rundown 19th August 2021

  • FOMC minutes suggested that participants generally judge that the standard of "substantial further progress" had not yet been met
  • Most judged that it could be appropriate to start reducing the pace of asset purchases this year
  • Stocks across Asia succumbed to the weakness seen across US peers with global risk sentiment pressured post-FOMC minutes
  • Hang Seng Tech Index declined to its lowest since its launch last year. Alibaba’s Hong Kong shares fell to record lows
  • DXY remains firm above 93.00, EUR/USD printed fresh YTD lows below 1.17 and activity currencies lag
  • Looking ahead, highlights include Norges Bank rate decision, US weekly jobs, Philadelphia Fed Business Index, supply from France and the US


FOMC Minutes from the July meeting stated they generally judged that the Committee's standard of "substantial further progress" toward the maximum-employment and inflation goals had not yet been met, particularly with respect to labour market conditions and that risks to the economic outlook remained, although most participants noted that provided the economy were to evolve broadly as they anticipated, they judged that it could be appropriate to start reducing the pace of asset purchases this year because they saw the Committee's "substantial further progress" criterion as satisfied with respect to the price-stability goal and as close to being satisfied with respect to the maximum-employment goal. However, several others indicated that a reduction in the pace of asset purchases was more likely to become appropriate early next year because they saw prevailing conditions in the labour market as not being close to meeting the Committee's "substantial further progress" standard or because of uncertainty about the degree of progress toward the price-stability goal.

Participants expressed a range of views on the appropriate pace of tapering asset purchases once economic conditions satisfied the criterion laid out in the Committee's guidance and many saw potential benefits in a pace of tapering that would end net asset purchases before the conditions currently specified in the Committee's forward guidance on the federal funds rate were likely to be met. Many participants also noted that when a reduction in the pace of asset purchases became appropriate, it would be important that the Committee clearly reaffirm the absence of any mechanical link between the timing of tapering and that of an eventual increase in the target range for the federal funds rate. Furthermore, several participants noted that an earlier start to tapering could be accompanied by more gradual reductions in the purchase pace and that such a combination could mitigate the risk of an excessive tightening in financial conditions in response to a tapering announcement, while most participants remarked that they saw benefits in reducing the pace of net purchases of Treasury securities and agency MBS proportionally in order to end both sets of purchases at the same time. (Newswires)


US President Biden said the US is still in a pandemic of the unvaccinated and that there are 85mln Americans that are eligible for vaccines but are unvaccinated. Furthermore, he confirmed plans for booster shots eight months after being vaccinated from the week of September 20th. (Newswires)

Johnson & Johnson (JNJ) is engaging with US FDA, CDC and other health authorities and will share new data soon regarding booster shots with its COVID-19 vaccine. In other news, a study by NIH showed there was no significant benefit of convalescent plasma for COVID-19 outpatients with early symptoms. (Newswires)

Oxford study showed AstraZeneca (AZN LN) and Pfizer (PFE) - BioNTech (BNTX) vaccines efficacy dropped in 90 days compared to two weeks after 2nd dose with the AstraZeneca vaccine efficacy at 61% and Pfizer vaccine at 75% at 90 days after 2nd dose. (Newswires)

Executives at major NYC banks said they are waiting for city, state and federal vaccination mandates to provide a safe harbour so they can impose stricter mandates on workers without fear of litigation, according to FBN's Gasparino. (Twitter)

Australia's New South Wales announced 681 locally-transmitted COVID-19 cases and the state is reportedly to extend lockdown through August 28th. (Newswires)

New Zealand PM Ardern said the current outbreak cases are a close match to a recent returnee from Sydney, while she added they can be fairly certain when the virus entered and the period for cases in the community is relatively short. New Zealand also reported 11 new COVID-19 cases and Health Chief Bloomfield said all cases are in Auckland with the numbers expected to continue to grow. (Newswires)


Stocks across Asia succumbed to the weakness seen across US peers with global risk sentiment pressured after the dust settled from the FOMC Minutes release which despite being perceived as dovish, noted that most participants judged it could be appropriate to start tapering this year, with the losses heading into the Wall St close also exacerbated as the DJIA broke below 35k and the S&P 500 breached its 20DMA to test the 4,400 level to the downside. ASX 200 (-0.5%) was dragged lower by underperformance in the mining and energy sectors after continued losses in underlying commodity prices and with Australia suffering from its worst day of COVID-19 cases since the pandemic began, while better-than-expected employment data was dismissed after ABS attributed the surprise decline in unemployment to people dropping out of the labour force. Nikkei 225 (-0.7%) failed to benefit from the headway made in USD/JPY as the index was pressured due to the broad risk aversion with Japan also including rare earths to its restrictions for foreign investment and the KOSPI (-1.5%) declined as North Korea effectively put the region on alert for a potential future missile launch. Hang Seng (-2.0%) and Shanghai Comp. (-0.8%) suffered from a collapse in Chinese commodity prices and ongoing regulatory concerns after China's MIIT found 43 apps that violated data transfer rules and ordered the companies involved to make changes or face punishment. The mood was also not helped by the Hang Seng Tech Index declining to its lowest since its launch last year and Alibaba’s Hong Kong shares falling to record lows, as well as the tit-for-tat passenger capacity restrictions imposed on US and Chinese airlines. Finally, 10yr JGBs were flat were subdued after failing to benefit from the negative risk appetite and the BoJ announcement to purchase corporate bonds with 3yr-5yr remaining maturities, while the enhanced liquidity auction results for longer-dated JGBs were relatively inline with the prior.

PBoC injected CNY 10bln via 7-day reverse repos with the rate at 2.20% for a net neutral daily position. (Newswires) PBoC set USD/CNY mid-point at 6.4853 vs exp. 6.4860 (prev. 6.4915)

Chinese President Xi is reportedly eyeing a return to communist party roots and signaling more assertively promoting equality amid regulatory crackdown in private sector and 'common prosperity' being increasingly touted. (WSJ)

China July YTD state owned firms' profits rose 112.4% Y/Y and state asset regulator said they will set up a new central government-owned conglomerate focusing on strategic emerging industries. Furthermore, the state-owned assets regulator demands central SOEs to push innovation in basic research, high-end chips, new materials, and new-energy vehicles. (Newswires/Global Times)

China Academy of Social Sciences Blue Book stated that China fiscal policy is at a turning point and the government must shift focus to long-term development including enhancing human capital to boost international competitiveness instead of prioritising short-term growth. (Newswires)

US Transportation Department restricted Chinese air carriers to 40% passenger capacity on flights to the US as a response to Chinese limits on United Airlines (UAL). (Newswires)

Taiwan Finance Ministry reportedly called state owned banks to suggest they purchase stocks amid market declines, according to sources. (Newswires)


In FX markets, the DXY ruled supreme overnight but initially fell beneath the 93.00 level in a knee-jerk reaction to the dovishly perceived FOMC Minutes which stated that participants generally judged that the Committee's standard of "substantial further progress" toward its goals had not yet been met, particularly with respect to labour market conditions and that risks to the economic outlook remained. Nonetheless, most participants judged it could be appropriate to start reducing the pace of asset purchases this year because they saw the Committee's "substantial further progress" criterion on price stability goal as being satisfied and the maximum-employment goal as close to being satisfied, although several others indicated that tapering was more likely to become appropriate early next year. The DXY gradually recovered in the aftermath of the FOMC Minutes with the rebound fuelled by weakness in its peers and a haven bid to print its highest since November last year, while rhetoric from Fed's Bullard remained hawkish whereby he noted that he wants the taper complete by Q1 2022. EUR/USD retreated below 1.1700 for a fresh YTD low and GBP/USD extended on yesterday’s declines due to the mighty dollar. USD/JPY climbed above 110.00 which was driven by its base currency although JPY-crosses were subdued by the risk aversion which also pressured antipodeans alongside the declines in commodity prices, while support from a surprise increase in Employment Change and decline of the Unemployment Rate in Australia to 4.6% from 4.9%, was only brief as the ABS warned the decline in unemployment should not necessarily be viewed as strengthening of the labour market and that unemployed people were dropping out of the labour force due to limited ability to look for work.

RBNZ Governor Orr said the view is to raise the cash rate to a more neutral level over the next 18 months and it is highly likely they would have hiked rates if it weren't for the Delta lockdown, while he added they have made it very clear the next move is likely an increase so can afford to wait. Governor Orr also noted that underlying demand for housing is at a very low rate and house prices are assumed to eventually decline as momentum in the housing market fades. (Newswires)

Australian Bureau of Statistics said the fall in national unemployment rate in July should not necessarily be viewed as strengthening of the labour market, while it noted that it is an indication of the extent of reduced capacity for people to be active in labour market and that unemployed people are dropping out of the labour force due to limited ability to look for work. (Newswires)

  • Australian Employment Change (Jul) 2.2k vs. Exp. -46.2k (Prev. 29.1k, Rev. 29100.0k)
  • Australian Unemployment Rate (Jul) 4.6% vs. Exp. 5.0% (Prev. 4.9%)


Commodities were lower across the board with the complex hit by several factors including Delta concerns, a subdued risk appetite and a firmer greenback. WTI crude futures extended on the prior day's sell-off after having failed to hold above the USD 67/bbl level and eventually slipped to beneath USD 65/bbl where it languished throughout Asia trade with the larger-than-expected drawdown in EIA crude inventories doing little to plug the losses. Gold was choppy and initially gained after the dovish FOMC Minutes but eventually faded the move as the dust settled and the USD strengthened to fresh YTD highs, while copper was pressured alongside the pressure in Chinese commodities in which Dalian iron ore futures collapsed around 7% in early trade with LME copper prices homing in the USD 9000/ton level.

US offshore regulator is to restore the federal oil and gas leasing programme after a court reversed the Biden administration's suspension. (Newswires)


US President Biden said US is having difficulty getting allies out of Afghanistan although separately commented that US forces will remain in Afghanistan until all Americans are evacuated even if it means staying beyond August 31st. (AFP/ABC)

North Korea reportedly issued a navigational warning for the East Sea in a signal of missile launch preparations. (Yonhap)


Treasuries were flat on Wednesday after a lack of hawkish surprises in the FOMC minutes saw the belly bounce off the lows. By settlement, 2s +0.5bps at 0.220%, 3s +0.3bps at 0.428%, 5s +0.9bps at 0.773%, 7s +0.7bps at 1.047%, 10s +1.0bps at 1.268%, 20s -0.9bps at 1.803%, 30s -1.0bps at 1.909%; TYU1 volumes were light. 5yr TIPS +3.1bps at -1.763%, 10yr TIPS +2.3bps at -1.053%, 30yr TIPS -1.0bps at -0.288%. Eurodollars little changed to slightly softer from the 2nd year out. SOFR and EFFR both unchanged at 5bps and 10bps, respectively. Heading into the US session Wednesday, there wasn't much reaction from the mixed housing data, with desks noting hedge fund selling from the belly out in futures the driving force that was followed on by dealers and real money. There was little strength for the curve on the back of the decent demand 20yr auction (more below), and instead, Treasuries began making new lows into the FOMC minutes. On which, those looking for any hawkish surprises were disappointed, with the minutes not singing the same hawkish tune as many officials have in wake of the July NFP report, which saw bonds bounce off the lows, although it's worth a mention that volumes were light, so hard to read too much into the moves which were likely flow driven as participants closed bearish hedges. For instance, one desk noted that the belly of the curve had led the post-minutes strength, which it suggests was due to real money and hedge funds buying 5/7yr paper in wake of comments that showed little appetite for larger cuts of MBS purchases than Treasuries, something which would have a more acute impact on those maturities. T-note (U1) futures settled 4 ticks lower at 134-04+.

Fed's Bullard (2022 voter, hawkish) said the recent data is slightly weaker but still expects "very robust" growth up to 7% this year and 4% in 2022. Bullard added the US has had an "inflationary shock" that is large and which the Fed needs to take into account for calibrating policy in 2022, while he still sees inflation at 2.5% through 2022 with the risk of it being "much higher" and would force the Fed into "inflation fighting mode". Furthermore, he repeated that he wants taper complete by Q1 2022 to open the option for an interest rate hike if needed. (Newswires)

White House is considering reinstating a dramatic increase in civil penalties for automakers who fail to meet fuel efficiency requirements. (Newswires)

Eleven California counties are under state of emergency from fires and more than 31k Californians are under the evacuation order. (Newswires)