• FOMC minutes were overall somewhat neutral but saw traders focus on the potential for a more hawkish tilt on the board going forward
• Asian bourses continued their rising streak with the Nikkei 225 outperforming in a catch-up play
• Looking ahead, highlights include Eurozone, UK and US Services PMIs, US ADP and Fed’s Bullard

FOMC MEETING MINUTES:

• The Fed’s latest meeting minutes were, on balance, neutral. However, traders seemed to focus on news that a few policymakers noted that median Fed projections published in December would bring too many rate hikes in 2018, but a few others stated that more hikes would be required in 2018 than implied by the projections.
• Elsewhere, policymakers generally saw medium-term inflation outlook as little changed, though “several” were concerned that persistently weak inflation may have hampered inflation expectations.
• Despite an initially muted reaction, USD gained strength and gold ebbed lower with markets likely disregarding the fears of ‘too many hikes in 2018’ given the upcoming change in composition at the Fed which many view as having a more hawkish tilt.

ASIA

Asian bourses continue their rising streak, with the region trading at around 10yr highs. Japanese investors return to the market for the first time this year, catch up play has seen Nikkei 225 gain 2.5%, while the Topix index (+2.3%) is trading at its best level since 1991. ASX 200 (+0.1%) has been buoyed by energy names yet again amid the persistent rise in crude. Elsewhere, Chinese markets are making marginal gains, Shanghai Comp up a modest 0.25% and Hang Seng +0.7% with sentiment supported by Caixin Services PMI which saw its fastest growth since Aug’14.

PBoC sets CNY mid-point at 6.5043 (Prev. 6.4920)

Chinese Caixin Services PMI (Dec) 53.9 vs. Exp. 51.8 (Prev. 51.9); Fastest rise since Aug 2014. (Newswires)

Bank of Japan Governor Kuroda says will continue patiently with easy monetary policy, adding that the economy is showing steady growth. (Newswires)

UK/EU

UK Government reportedly plans to guarantee EU level farming grants post Brexit, according to sources. (Newswires)

UK PM May believes that EU Chief Negotiator is bluffing when he says that there will be no special deal for the UK’s financial services, according to officials. (Newswires)

FX

Another quiet session on the FX front, the USD is up marginally, however, continues to meander around the 92 level. The greenback has seemingly dismissed the FOMC minutes. JPY weaker across the board with the risk on tone across the Asia-Pac region keeping the currency pressured, while AUD had been slightly supported by the better than expected Chinese Caixin Services PMI reading.

COMMODITIES

Continuing tensions in Iran, optimism about the health of the global economy, and last nights API report showing that crude stocks fell for the seventh straight week helped the crude complex with WTI making a break above USD 62/bbl. In metals markets, gold saw its first decline in 3 ½ weeks amid the further USD.

US API weekly crude stocks (25 Dec, w/e) -4.992M vs. Exp. -5.300M (Prev. -5.222M)

Cushing number (25 Dec, w/e) -2.11M (Prev. 0.07M)

dist. stocks (25 Dec, w/e) 4.272M vs. Exp. 1M (Prev. -2.850M)

gasoline stk (25 Dec, w/e) 1.87M vs. Exp. 1.9M (Prev. 2.001M)

According to SCMP, China vows to meet targets to cut steel production capacity. (Newswires)

GEOPOLITICAL

North Korea is said to have called South Korea at 0930 local time via Panmunjom phone line, whereby they stated that there is nothing to update as of yet. (Newswires)

Iran’s elite Revolutionary Guards have deployed forces to tspanee provinces to put down anti-government unrest after six days of protests. (Newswires)

US

As on Tuesday, Treasuries were following Bunds in early trade, with curve flattening being seen ahead of the ISM data and FOMC meeting minutes, with real money said to be buying in the long-end. But the Treasury complex ran into sellers after decent ISM Manufacturing data, with 2-year yields rising to a nine-year high.