US MARKET WRAP – Fed’s Dudley OK’s September Balance Sheet Announcement & Keeps A Third Hike In 2017 On The Table As Geopolitical Worry Wanes

Markets breathed a sigh of relief as US-North Korean tensions failed to heighten over the weekend. Permanent FOMC voter Bill Dudley provided the most notable headlines today, as he stated that “if the economy evolves in line” with his expectations, he would expect that he “would be in favour of doing another rate hike later this year.” Dudley also opined that “market expectation is not unreasonable” re: September balance sheet reduction while noting that he is “not particularly concerned about where our asset prices are today.”

US indices started the week on the front foot as geopolitics took a back seat (for today at least), with IT and financials leading the way. The S&P 500 closed up 1.00% at 2,465.72, the NASDAQ closed up 1.31% at 5,908.17, and the Dow closed up 0.62% at 21,993.44.

Dudley’s rhetoric pushed the DXY to best levels against the majors, and that is where the USD closed out the New York session.

Fixed income moved lower in the wake of Dudley, with 10y T-note futures eeking out fresh session lows and Fed Fund Futures now pricing in a circa 41% chance of the Fed delivering a 25bps hike in December (from around 36% post-CPI on Friday). Sep’17 10y T-note futures settled at 126.17+, down 8+ ticks.

Oil shook off supportive weekend headlines surrounding Libyan production, and moved lower in afternoon trade weighed down by a bearish Genscape Cushing inventory number, a sources piece which suggested that OPEC will state that Iraqi compliance to the production deal stands at 43%, an EIA report that projected total US shale regions oil production will increase by 106K bpd in September and local newswires suggesting that Iranian crude exports to Europe have reached post-sanction highs. WTI settled at USD 47.59/bbl, down USD 1.23.

14 Aug 2017 - 21:00- Fixed IncomeBank Speaker- Source: RANsquawk