• FOMC minutes drew little in the way of a market reaction with policymakers divided on when to implement balance sheet reductions
• Asian equities trimmed opening gains in what was a light session overnight with FX markets relatively rangebound
• Looking ahead, highlights include ECB minutes and DoEs

FOMC MINUTES

• Most policymakers viewed recent softness in inflation as having little impact on inflation trend.
• Several policymakers wanted to announce start of balance sheet trimming within a couple of months, others wanted to wait until later in 2017; Yellen suggested announcing the new approach to balance sheet plan at the June meeting.
• Reaction to the minutes was muted as they did little to suggest the Fed was on course to alter the rate path trajectory or change the plans to unwind the balance sheet.

ASIA

Asia equity markets failed to sustain opening gains and traded mostly negative as a lack of drivers and weakness in energy suppressed sentiment in the region. ASX 200 (-0.1%) and Nikkei 225 (-0.5%) were both lower with energy among the underperformers after crude prices fell around 3%, while a firmer JPY kept Japanese exporters in check. Shanghai Comp. (-0.3%) and Hang Seng (-0.3%) were choppy as China’s continued efforts to support business conditions was overshadowed after the PBoC refrained from liquidity injections and reiterated a prudent policy stance. 10yr JGBs were marginally lower and failed to benefit from the weak sentiment across the region, while the 30yr JGB auction results also failed to spur demand with the b/c virtually unchanged despite a decline in accepted prices from last month.

PBoC refrained from conducting open market operations for the 10th consecutive session. (Newswires)

PBoC set CNY mid-point at 6.7953 (Prev. 6.7922)

EUROPE/UK

Newsflow from the region remains light overnight.

FX

Price action across FX markets was quiet with the USD-index flat after the FOMC minutes. Elsewhere, a cautious risk tone which emanated from North Korean tensions spurred flows to safe-haven JPY and pushed USD/JPY briefly below 113.00, while AUD/USD caught a slight bid from a wider than expected Trade Surplus and momentarily reclaimed the 0.7600 handle. However, the support for AUD fizzled out alongside downward revisions to the prior month’s Trade Balance and weaker oil prices.

Australian Trade Balance (May) 2.471B vs. Exp. 1.000B (Prev. 0.555B, Rev. 0.090B)

Australian Exports (May) M/M 9% (Prev. -8%)

Australian Imports (May) M/M 1% (Prev. -1%)

COMMODITIES

The commodities complex was quiet during Asia trade which provided respite from yesterday’s 4% drop in oil, with prices also supported off lows following a larger than expected draw in the API crude inventories. Copper languished amid a risk-averse tone while gold traded sideways alongside a flat greenback and after an uneventful FOMC minutes release.

US API Crude Oil Inventory Report (Jun 30) W/W -5764K (Prev. 851K). (Newswires)

GEOPOLITICAL

US White House said it is exploring the next steps on North Korea, while US Ambassador to UN Haley stated that the US will go on its own path if needed on North Korea and could use military force against North Korea, although she added that Washington would prefer not to have to go in that direction. (Newswires)

US

Treasuries edged away from session highs following the release of the FOMC minutes, but moved back to pre-release levels. Earlier in the day a soft US factory orders print had provided a bid. US 10 Year T-notes settled up 3+ ticks at 125.07.