Newsquawk

Euro Market Open: FOMC minutes note a risk of overtightening, multiple Fed speakers ahead

18 Aug 2022, 06:50 by Newsquawk Desk

APAC stocks mostly declined following the weak handover from global counterparts as markets ramped up hawkish central bank pricing.
FOMC Minutes noted many officials saw a risk the Fed could tighten more than necessary.
European equity futures are indicative of a marginally higher open with the Euro Stoxx 50 future +0.2% after the cash market closed lower by 1.3% yesterday.
FX markets are relatively contained with the DXY remaining on a 106 handle, EUR/USD capped by resistance at 1.02 and USD/JPY is just above 135.00.
Looking ahead, highlights include EZ CPI (Final), US IJC, Philadelphia Fed, Existing Home Sales, New Zealand Trade Balance, Norges Bank & CBRT Policy Announcements, Speeches from Fed's George, Fed's Kashkari & ECB's Schnabel, supply from France.

US stocks were lower as global markets ramped up their hawkish central bank pricing in the wake of double-digit UK CPI data, although the release of the July FOMC minutes later softened the blow after noting that many participants expressed a risk the Fed could tighten more than necessary.
SPX -0.72% at 4,274, NDX -1.21% at 13,470, DJIA -0.50% at 33,980, RUT -1.80% at 1,983.
Click here for a detailed summary.

FOMC MINUTES

FOMC Minutes noted that all participants agreed a 75bps interest rate hike was appropriate and many officials saw a risk that the Fed could tighten more than necessary, while some participants said the policy rate would have to reach a sufficiently restrictive level to control inflation and remain there for some time. Furthermore, participants concurred future rate hikes would depend on incoming information and judged that at some point it would be appropriate to slow the pace of increases.
FOMC Minutes also stated that participants agreed there was little evidence inflation pressures were subsiding and that it would take a considerable time for the situation to be resolved, while participants said the strength of the labour market suggests economic activity is stronger than implied by the weak Q2, raising the possibility of upward GDP revision.

NOTABLE US HEADLINES

Fed's Bowman (voter) said the labour market continues to be strong and the future of labour supply is uncertain, while she added that some retirees may feel compelled to return to work due to inflation and that high inflation and strong employment will likely create some pressure on labour and employment.
Atlanta Fed GDPnow Q3 tracker cut to 1.6% from 1.8% following the retail sales data.

US senior administration official said the US supports Ukraine conducting strikes on Russian-occupied Crimea if Kyiv deems it is necessary, according to Politico.

US and South Korea’s joint statement noted that their expanding military drills point to closer bilateral ties and said the next North Korean nuclear test could lead the US to deploy strategic assets to South Korea, according to SCMP.

APAC stocks mostly declined following the weak handover from global counterparts which were pressured as yields climbed on the back of the red-hot UK inflation data and with only a brief reprieve seen after the FOMC Minutes noted many officials saw a risk the Fed could tighten more than necessary.
ASX 200 was subdued as participants digested the latest influx of earnings releases and disappointing jobs data which showed a surprise contraction in headline Employment Change.
Nikkei 225 slipped back beneath the 29,000 level in tandem with the overall downbeat sentiment.
Hang Seng and Shanghai Comp conformed to the glum mood after both Goldman Sachs and Nomura cut their China GDP growth forecasts and with focus also on earnings releases including Tencent after it posted its first-ever decline in quarterly revenue although its shares were lifted and it had vowed a return to growth, while Country Garden led the declines after the developer issued a profit warning of as much as an 87% drop in H1 net.
US equity futures traded sideways after the initial tailwinds from the FOMC Minutes waned. ES -0.2%.
European equity futures are indicative of a marginally higher open with the Euro Stoxx 50 future +0.2% after the cash market closed lower by 1.3% yesterday.

DXY was rangebound overnight after the choppy mood seen during yesterday’s session where it pulled back from initial advances and returned to relatively flat territory in the aftermath of the FOMC Minutes.
EUR/USD was lacklustre after recent momentum was capped by resistance near the 1.0200 level.
GBP/USD remained subdued after yesterday’s selling pressure despite the red-hot UK inflation data which hit a 40-year peak and stoked further recession fears.
USD/JPY lacked direction as the recent yield-driven momentum was offset by the downbeat mood.
Antipodeans were uninspired after weak jobs data from Australia which showed a surprise contraction in Employment and although the Unemployment Rate was lower than expected, the Participation Rate also declined.

10yr UST futures rebounded off the prior day’s lows after the somewhat dovish-tilted FOMC Minutes but with the recovery capped by resistance at the 119.00 level.
Bund futures languished near this month’s worst levels after selling was triggered in the aftermath of the hot UK CPI reading which spurred advances in global yields.
10yr JGBs futures were lacklustre amid mixed results at the 20yr JGB auction.

Crude traded rangebound after yesterday's choppy mood as recent bullish inventories were offset by the risk aversion and with price action overnight contained by China's COVID and growth woes.
Spot gold was uneventful with only brief support from the FOMC Minutes.
Copper marginally extended on the prior day's declines amid the subdued risk tone and growth concerns surrounding its largest purchaser China.

Bitcoin was marginally higher but with gains capped by resistance at 23,500.

NOTABLE APAC HEADLINES

US State Department spokesperson Price said the US will continue to take steps to support Taiwan.
US top diplomat for East Asia Kritenbrink said China overreacted and that several warships remain around Taiwan, while he expects China's pressure campaign around Taiwan to continue and said the US remains committed to the One China policy. Furthermore, he noted the US approach on Taiwan has remained consistent and that they do not support Taiwan's independence, but added that what has changed is Beijing's increasing coercion and that China's words and actions are deeply destabilising.
US and Taiwan are to begin formal trade talks "early this fall, according to Bloomberg.
Chinese top diplomat Yang met Japan's National Security Adviser on Wednesday and reached some beneficial consensus, while the officials spoke candidly, in-depth and constructively, as well as agreed to continue talks towards creating a constructive and stable relationship, according to Xinhua and Jiji.
China may issue CNY 1.5tln in additional debt as part of an investment push, according to China Securities News.
China's COVID-19 cases rose to a 3-month high of 3,424 on Wednesday from 2,888 the day before.
Goldman Sachs cut its China 2022 GDP growth forecast to 3.0% from 3.3% and Nomura cut its China 2022 GDP growth forecast to 2.8% from 3.3%.

DATA RECAP