Original insights into market moving news

[PODCAST] EU Open Rundown 20th June 2019

  • FOMC stood pat on rates, dot plot showed median forecast is for no change in rates in 2019 although nearly half expected lower rates
  • Fed stated it will closely monitor developments and removed its pledge to be “patient”.
  • BoJ kept monetary policy settings unchanged as expected
  • Boris Johnson maintained the lead in the third Conservative leadership vote, Rory Stewart eliminated
  • Looking ahead, highlights include BoE and Norges rate decisions, UK retail sales, US weekly jobs, Philly Fed, ECB’s de Guindos, BoE’s Carney, ECB’s Rehn, supply from Spain and France



- FOMC left rates unchanged between 2.25-2.50% as expected but tweaked the language in its statement to reflect a more dovish stance.

- FOMC downgraded its assessment of economic activity to moderate from solid and noted that uncertainties about the outlook have increased.

- Furthermore, the Fed stated it will closely monitor developments and removed its pledge to be “patient”.

- Fed’s Bullard was the only dissenter on rates and favoured a cut.

- Fed dot plots showed median forecast is for no change in rates in 2019 although nearly half expected lower rates in which one policymaker forecasts one cut, 7 anticipate two rate cuts, 8 see rates to remain steady and one sees a rate hike. The median view for the Fed Fund Rates in end-2020 is at 2.1% (Prev. 2.6%); end-2021 at 2.4% (Prev. 2.6%) and longer run at 2.5% (Prev. 2.8%).

- Fed sees growth slightly stronger in 2020, jobless rate and inflation are seen slightly lower compared to March projections.

- Fed Chair Powell noted at the press conference that many participants see a strong case for rate cuts and that even among the participants who did not see rate cuts, the case for accommodation was stronger now than in the previous meeting. Powell also stated that many participants cited weaker business investment and cross currents as the reason for cuts, while participants also anticipate inflation moving to the target more slowly than expected although he reverted back to the “monitoring” language when explicitly asked about whether the Fed would cut at the upcoming meeting. (Newswires) 


Asian equity markets traded mostly positive as the region digested the dovish FOMC. ASX 200 (+0.2%) was led higher by gold names after the precious metal surged to its highest since 2013 but with upside in the broader market capped by weakness in other miners including Rio Tinto after it lowered its iron ore production outlook and with Caltex heavily pressured on disappointing guidance. Nikkei 225 (+0.5%) was also supported in the aftermath of the FOMC although a firmer currency and unsurprising BoJ announcement limited the advances, while Hang Seng (+1.0%) and Shanghai Comp. (+2.5%)outperformed on optimism ahead of the US-China trade talks and as financials surged after continued liquidity efforts by the PBoC. Finally, 10yr JGBs were higher as they tracked the upside in T-notes amid a decline in global yields with the US 10yr yield below 2.00% for the first time since November 2016 and with the 30yr yield also at similar multi-year lows.

PBoC injected CNY 30bln via 14-day reverse repos. PBoC set CNY mid-point at 6.8805 (Prev. 6.8893)

Early talks suggest G20 members' frustration regarding US-China trade spat and that there is mounting pressure on the world's two largest economies to ease trade tensions. (FT)

US President Trump and Chinese President Xi are expected to meet over dinner on June 29th in Japan. President Trump says he will also be meeting with Russian President Putin at the G20. (Newswires)

USTR Lighthizer said will meet with China VP Liu He this week and again before the Trump-Xi meeting at G20. (Newswires)

Chinese Premier Li told visiting foreign Co. CEOs that China will maintain commitment to reform and opening up and will also relax restrictions on access to even more sectors. (Newswires)

China Global Times Editor questioned on Twitter whether China and the US are set to have new decisive negotiations and stated that he and the people around him are less optimistic than they were when the two leaders met last December, while he believes Trump's call is a result of the fight from the Chinese side and that more battles may be needed for making the US fairer. (Twitter)

BoJ kept monetary policy settings unchanged as expected with NIRP held at -0.1% and 10yr JGB yield target at around 0%, while it maintained forward guidance of keeping rates at extremely low levels at least through to Spring 2020. Furthermore, the BoJ said its decision to maintain QQE with YCC was made by 7-2 votes with Harada and Kataoka the dissenters, and stated the economy is likely expanding moderately as a trend which is likely to continue although output and exports are impacted by overseas slowdown. (Newswires)


Boris Johnson maintained the lead in the third Conservative leadership vote with 143 votes vs. Jeremy Hunt at 54 votes, Michael Gove at 51 votes, Sajid Javid at 38 votes and Rory Stewart eliminated with 27 votes. (Newswires) Reports suggest supporters of Johnson are looking to mount an operation to detail Gove’s leadership hopes. (Telegraph)

Italy’s ruling coalition drafted a bill to reform the BoI's management which will be proposed by the govt and parliament. (Newswires)


DXY weakened and fell below 97.00 in the wake of the FOMC. As such, EUR/USD and GBP/USD extended above 1.1250 and 1.2650 respectively, while USD/JPY slipped below 108.00 to its weakest levels since January due to USD softness and after an unsurprising BoJ announcement. Antipodeans were underpinned by the Fed and with gains in NZD/USD exacerbated by better than expected Q1 GDP, although further advances in AUD/USD was capped by resistance at 0.6900 and dovish comments by RBA Governor Lowe who suggested further rate cuts remain on the table.

RBA Governor Lowe said the possibility of lower rates remain on the table and that it is not unrealistic to expect a further reduction in the Cash Rate. Governor Lowe also commented that recent data suggests we are not making any inroads into the economy's spare capacity and it is unrealistic to think one 25bps cut can alter the growth path, while he also suggested that it is important to recognize monetary policy is not the only option and that he is very hopeful we will not need to cut as far as some central banks in Europe. (Newswires)

New Zealand GDP (Q1) Q/Q 0.6% vs. Exp. 0.6% (Prev. 0.6%), Y/Y 2.5% vs. Exp. 2.4% (Prev. 2.3%, Rev. 2.5%)


Commodities were higher across the board with advances in the complex fuelled by a weaker greenback and dovish FOMC. This saw WTI crude futures extend above the USD 54.00/bbl level as prices remained supported by the recent bullish EIA inventory report and ongoing geopolitical concerns surrounding Iran, as well as reports of a missile strike which hit a desalination plant in Saudi Arabia. Elsewhere, gold outperformed post-FOMC and even experienced a flash spike in which the precious metal surged around USD 18/oz in a matter of seconds before eventually reversing the move which some also attributed to a breakout from a 5-year range, while copper also benefitted from the risk tone and as Dalian iron ore prices continued its streak of fresh record highs.

UAE Energy Minister said the country supports a decision to extend OPEC+ production cuts and that an extension to the cuts is reasonable as the market's position requires it. (Al Bayan)


US White House Press Secretary Sanders said President Trump has been briefed on details of a missile strike in Saudi Arabia, which unverified reports noted hit a desalination plant. (Newswires)

Iranian Revolutionary Guard shot down a US drone according to reports citing the state news agency, although the US military later stated that no US aircraft had operated in Iranian airspace. (Associated Press/Newswires)


The Treasury curve bull-steepened after a dovish FOMC meeting, where the Fed held rates though tweaked its guidance in a dovish manner and reiterated a willingness to act if the situation required. The near-end of the Treasury yield curve saw further lows (2s see a 1.5yr low, 3s nearly a 20-month low), though the 10-year note again is clinging to a 2-handle at settlement, though it is only a couple of basis points from going under 2%. At settlement, 2s30s was nearly 8bps wider. In terms of pricing for Fed cuts, 29.5bps of cuts has been priced for July (vs 24.9bps prior to today's rate decision); by end 2019, 71.5bps of cuts are priced (vs 60.5bps before the rate decision). US T-note futures (U9) settled 11+ ticks higher at 127-27+.

President Trump is said to believe he has the authority to replace Fed Chair Powell but will not remove him for now. (Newswires)

US Treasury Secretary Mnuchin said President Trump intends to keep the government open and that the White House will propose a one-year continuing resolution as well debt limit hike if no deal is made. (CNBC)

Potential Fed nominee Shelton said she would like to see lower rates as fast as possible. (Washington Post)