FOMC announced plan to begin balance sheet normalization as anticipated, and suggested increased prospects of a 3rd rate hike for 2017

The USD strengthened and yields rose after the decision as markets have to reprice expectations of hikes

Looking ahead, highlights include weekly jobs data, Philly Fed, ECB’s Praet and Draghi

FED DECISION

The FOMC confirmed plans to begin sspaninking the balance sheet in October, following the schedule set out in July.

The fed kept the FFR unchanged at 1.00% - 1.25%, as expected.

More on the committee favoured another rate hike by the end of this year (11 vs. 8 in July).

Fed downgraded near-term core PCE while lowering long run FFR, however, median still calls for 3 hikes in 2018.

The USD strengthened and yields rose after the decision as markets have to reprice expectations of hikes

ASIA

Asia equity markets were mixed as the region mulled over the events from US, where the FOMC announced plan to begin balance sheet normalization as anticipated, and suggested increased prospects of a 3rd rate hike for 2017 as dot plot projections showed more committee members expect another hike by year-end. This weakened ASX 200 (-0.9%) with gold miners weighed after the precious metal felt the brunt of a firmer USD in the aftermath of the Fed, while Nikkei 225 (+0.4%) outperformed on a weaker currency. Chinese markets were indecisive with Hang Seng (Unch.) and Shanghai Comp (+0.2%) choppy after a reserved PBoC operation and an increase in Hong Kong money market rates, although Macau gambling names were higher on optimism ahead of National Day holidays. 10yr JGBs opened lower to track the declines in USTs and amid the heightened risk tone in Japan, although mild support was seen on return from the break after a somewhat dovish dissent at the BoJ.

BoJ kept monetary policy unchanged as expected with NIRP maintained at -0.10% and the 10yr yield target at around 0%.

BoJ stated that the decision on yield curve control was made by 8-1 decision in which known reflationist Kataoka dissented as he viewed that it was insufficient to meeting inflation goal by around fiscal 2019.

PBOC injected CNY 40bln via 7-day reverse repos and CNY 20bln via 28-day reverse repos. (Newswires)

PBoC set CNY mid-point at 6.5867 (Prev. 6.5670)

EUROPE/UK

Greece is looking at conducting a bond swap, replacing 20 issued in 2012 with four or five new ones, via sources. (Newswires)

FX

USD remained firm following the Fed announcement, which kept the greenback’s major counterparts subdued with EUR/USD and GBP/USD lower by over a point from pre-announcement levels to trade with 1.18 and 1.34 handles respectively. Elsewhere, inline New Zealand Q2 GDP figures failed to provide any reprieve for NZD/USD and JPY extended on losses with USD/JPY firmly above 112.00 post-FOMC, while the BoJ policy announcement was a non-event as the central bank maintained policy settings as expected.

New Zealand GDP (Q2) Q/Q 0.8% vs. Exp. 0.8% (Prev. 0.5%, Rev. 0.6%). (Newswires)

New Zealand GDP (Q2) Y/Y 2.5% vs. Exp. 2.5% (Prev. 2.5%)

COMMODITIES

Commodities were mostly weaker with gold prices back below USD 1300/oz after the USD strengthened in the wake of the FOMC. Elsewhere, copper was also pressured alongside broad pressure in the complex and with selling exacerbated at the open of Chinese metals trade, while WTI took a breather from yesterday’s gains and was unchanged tspanoughout the session.

Algerian Energy Minister said OPEC is to discuss output cut extension at meeting on 22nd September. (Newswires)

US

The FOMC confirmed plans to sspanink the balance sheet, beginning in October, while keeping interest rates unchanged at 1.00% - 1.25%. These decisions did not come as a surprise with markets then focusing on the Fed’s Summary of Economic Projections. More on the FOMC (11 from 8 in July) forecast another rate hike by the end of 2017, while the downgrades to the Fed’s inflation forecast may not have been as large as some had expected. This sent yields higher across the board with 10y yields up as much as 4bps, and 2y yields rising to 9-year highs. Finally, Dec’17 10y T-notes futures settled at 125.20, down 11+ ticks.