• FOMC Minutes saw USD and treasury yields back up after the FOMC thought it was prudent to wait for further evidence that recent weak data was transitory before hiking again
• The subsequent upside in US equities filtered tspanough to Asia-Pac trade while WTI and Brent crude saw mild gains ahead of OPEC
• Looking ahead, highlights include UK GDP, OPEC Meeting, Fed’s Brainard and ECB’s Constancio

FOMC Minutes

- FOMC minutes show the Committee thought it was prudent to wait for further evidence that recent weak data was transitory before hiking again.

- Fed staff presented a plan to set gradually increasing limits on balance sheet reinvestment that would start low and be raised every 3 months until fully phased in; nearly all Committee members viewed the proposal as favourable.

- USD and treasury yields backed up following the release as the Fed sounded a little more uneasy about the domestic economic outlook (although it suggested that the assessment of the economy had changed little since the March policy meeting) and no real detail was given on balance sheet normalisation.

- For analysis on the FOMC minutes please click here

ASIA

Asia equity markets traded mostly higher following the positive US lead where stocks gained for a 5^thconsecutive day and both S&P 500 and Nasdaq 100 posted fresh record highs, after FOMC minutes suggested a prudent and gradual approach on rate hikes. This resulted to gains in ASX 200 (+0.1%) and Nikkei 225 (+0.4%), with the latter also helped by commentary from BoJ board member Sakurai that it is vital to maintain monetary easing due to moderate inflation and uncertainty abroad. Shanghai Comp. (+0.4%) and Hang Seng (+0.6%) have also edged gains after the PBoC continued to inject liquidity into the interbank market and amid reports that China is mulling allowing foreign investors access to the futures markets. Finally, 10yr JGBs were indecisive with demand lacking amid positive risk appetite, while the 40yr auction also failed to spur demand with the b/c slightly lower than prior.

Fitch stated that China's finance and track record underpin its A+ rating, but added that the nation's imbalances pose risks to economic stability. (Newswires)

CSRC stated that it is considering allowing foreign investors into futures markets, but added it will not allow innovation in futures market to bypass regulation. (Newswires)

PBoC injected CNY 60bln in 7-day reverse repos and CNY 10bln in 14-day reverse repos. (Newswires)

PBoC set CNY mid-point at 6.8695 (Prev. 6.8758)

Bank of Korea kept its 7-Day Repo Rate unchanged at 1.25% as expected, with the decision made by a unanimous vote. BoK commented that it is to maintain an accommodative monetary policy stance and that local economic growth is to stronger than anticipated. (Newswires)

EUROPE/UK

Newsflow from the region remains light overnight.

FX

The USD-index weakened and broke below 97.00 following the FOMC minutes release in which officials still viewed gradual tightening as appropriate and thought it was prudent to wait for further evidence that recent weak data was transitory before hiking again. This supported EM currencies and the greenback’s major counterparts alike, with EUR/USD above 1.1200, while GBP/USD recovered from yesterday’s trough. Elsewhere, NZD was choppy following the budget release in which surplus forecasts for FY 16/17 were revised higher, although surplus estimates for the approaching years were reduced.

New Zealand’s annual budget forecasts a larger budget surplus of NZD 1.62bln vs. Prev. forecast NZD 0.50bln for FY 16/17, although surplus forecasts for all the approaching years tspanough to 2021 were reduced. The budget also forecasts GDP growth of 3.2% in 2017 and 3.7% in 2018, while it included NZD 11bln infrastructure spending and plans to raise income tax tspanesholds as part of a 4-year NZD 6.5bln family package. (Newswires)

COMMODITIES

WTI crude futures saw mild gains ahead of the OPEC meeting in Vienna later today, where consensus is for oil producers to extend the production cut agreement for 9-months. Elsewhere, gold (Unch) traded sideways overnight to hold on to the gains seen following the FOMC minutes release, while copper saw muted trade with prices flat for the entire Asia-Pac session.

Kuwait oil minister said only a 9-month oil output extension will be considered at Thursday’s OPEC meeting and that a 12-month extension is not an option. However, there were conflicting comments from the Iraq oil minister who stated they still looking at a 12-month oil cut extension but prefers 9 months. (Newswires)

Russian energy minister Novak said discussions centre around 9-month extension to cuts with a potential 3-month addition. (Newswires)

US

Treasuries rose on the back of the FOMC minutes with markets apparently focused on the line that it would be prudent to wait before continuing the hiking cycle. Yields had been higher in the early part of the session but fell after a strong 5-year auction which was the first that didn’t tail in 2017. Finally, Jun’17 10y T-note futures settled at 126.02, up 6+ ticks.

Fed's Evans (Voter, Dove) said that unconventional tools work and that conventional measure are even stronger, although he added that inflation has been stubborn and slow to reach target. Evans further commented that it is hard for some to deliver above-target inflation and that it is key to try harder to reach the inflation goal sooner. (Newswires)

Fed's Kaplan (Voter, Neutral) said he thinks long-run neutral rate is closer to 2% than 3% and reiterated his forecast for a total of 3 rate hikes this year. (Newswires)

Congressional Budget Office stated it estimates US House healthcare bill would lower the budget deficit by USD 119bln over 2017-2026 and that the bill would lead to a 23mln increase in number of uninsured in 2026 vs. increase of 24mln in the prior version of bill. CBO also commented that 14mln more would be uninsured in 2018 compared to under the current law, while a US White House aide later responded that the CBO is incapable of an accurate healthcare bill projection. (Newswires)

US Senate Majority Leader McConnell said prospects are pretty good for passage of tax reform legislation and added that in early stages, votes are lacking for passage of healthcare bill. (Newswires)

Russian Officials are said to have discussed how to influence top Trump campaign aides last summer, according to info gathered by US Intelligence personnel during 2016. (NYT)