FOMC minutes saw downside in USD and yields with the Fed cautious over inflation prospects for the US

Asian equities were relatively indecisive. AUD/USD retreated from two-week highs following the latest Aus jobs report

Looking ahead, highlights include UK retail sales, Eurozone inflation, ECB minutes, Fed’s Kaplan and Kashkari

FOMC Minutes

FOMC minutes showed that some policymakers were prepared to announce a starting date for winding down the balance sheet at the July meeting and that some voting policymakers said further interest rate hikes should wait until there were signs inflation would rise to Fed's 2.0% target.

Voting policymakers were concerned about slowdown in inflation and agreed to monitor prices closely, while policymakers disagreed on whether inflation expectations were well-anchored.

USD weakened in reaction to the minutes as markets focused on the Fed's caution over inflation which pressured USD/JPY to session lows from 110.50 to 110.20 over a 10-minute period. Treasuries pushed marginally higher with Sep'17 10y T-notes moving from 126.13 to 126.16 in an immediate reaction, while spot gold also pushed higher amid the weaker USD, rising to session highs of 1281.70.

ASIA

Asia equity markets traded indecisive following a relatively tepid close in the US where basic materials outperformed as zinc rose above USD 3000/ton to a decade high, while energy and financials declined on oil weakness and after US yields were pressured post-FOMC minutes. ASX 200 (Unch) was choppy with miners underpinned by strength across the metals complex and as a slew of earnings releases also drove individual stocks, while Nikkei 225 (-0.1%) was subdued by a firmer currency. Shanghai Comp (+0.3%) and Hang Seng (-0.1%) were both initially higher, although the latter then pared gains on profit taking and amid an increase in money market rates. 10yr JGBs traded flat amid an indecisive risk tone in Japan, while the 5yr auction also failed to spur price action as the results were mixed.

PBoC injected CNY 60bln in 7-day reverse repos and CNY 40bln in 14-day reverse repos. (Newswires)

PBoC set CNY mid-point at 6.6709 (Prev. 6.6779)

Japanese Trade Balance (Jul) JPY 418.8bln vs. Exp. JPY 327.1bln (Prev. JPY 439.9bln). (Newswires)

- Exports (Jul) Y/Y 13.4% vs. Exp. 13.2% (Prev. 9.7%)

- Imports (Jul) Y/Y 16.3% vs. Exp. 17.0% (Prev. 15.5%)

EUROPE/UK

UK government reportedly to allow EU migrants tspanough Irish border into the UK post-Brexit, with government position paper suggesting the government will preserve the common travel area between Northern Ireland and the Republic of Ireland. (Newswires)

The next phase of Brexit talks is likely to be delayed until December, according to sources. (Sky News)

Britain’s exit from the European Union will result in a worse customs deal than it has now, according to the Institute for Government. (Newswires)

FX

USD weakened after yesterday’s FOMC minutes which supported the greenback’s major counterparts and helped GBP/USD reclaim the 1.2900 handle while USD/JPY slipped below 110.00. AUD/USD pulled back from its best levels in nearly 2 weeks despite jobs data which showed headline Employment Change surpassed estimates, as this was solely driven by part-time jobs with full-time employment at a contraction.

Australian Employment Change (Jul) 27.9k vs. Exp. 20.0K (Prev. 14.0K, Rev. 20.0K). (Newswires)

- Unemployment Rate (Jul) 5.6% vs. Exp. 5.6% (Prev. 5.6%, Rev. 5.7%)

COMMODITIES

The metals complex traded higher overnight with gold prices extending on gains seen following the FOMC minutes. Elsewhere, Copper traded higher alongside broad strength across basic materials with Dalian iron ore prices up nearly 6%, while WTI traded quiet overnight and failed to make any significant recovery from yesterday’s post-DoE declines.

Saudi Arabia June output rose 190K bpd M/M to 10.07mln bpd, while Saudi Arabia June crude exports fell 40K bpd M/M to 6.889mln bpd, according to JODI data. (Newswires)

Libya's NOC said that the Sharara oil field is "working normally and the situation is currently stable" following recent security breaches. (Newswires)

US

US Treasuries rallied after the minutes with the 10y yield declining over 5bps. The comments on inflation led most to believe that interest hikes can be paused, although late comments from Fed’s Mester, one of the most hawkish members, suggested that it would be premature to delay rate hikes. Sep’17 10y T-notes settled at 126.16+, up 11+ ticks.

Fed's Mester (non-voter, hawk) said does not feel weak inflation should delay rate hikes. Mester added that the Fed to likely announce start date for reducing the balance sheet before actually scaling back reinvestments. (Newswires)

US President Trump has ended both the Manufacturing Council and the Strategy & Policy Forum, amid a raft of resignations following his response to Charlottesville. (Newswires)