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IFR Markets ForexWatch Asia Regional Daily Briefing Oct 31

SYDNEY, Oct 31 (IFR) - Headlines from Wednesday Night * US Fed funds target rate, 0.25%, f/c 0.25%, and 0.25%-prev * Fed makes no changes to forward guidance, to keep buying USD85bn in bonds, data suggests economy showed further improvement but unemployment remains elevated, fiscal policy restraining growth, recovery in housing has slowed * RBNZ to tighten in 2014, but currency gives flexibility - RTRS * ECB's Costa Portugal needs to deliver on its program and needs to rely on solidarity of European partners, Portuguese banking system facing challenges * Portugal's banking outlook remains negative (Moody's) * Spanish banks to get E28bln core capital boost thanks to state guarantees on tax credits * US ADP national employment Oct, 130k, f/c 150k, 145k-prev * US CPI m/m, sa Sep, +0.2%, 0.2%, 0.1%-prev * US CPI y/y, nsa Sep, +1.2%, f/c 1.2%, 1.5%-prev * US Core CPI m/m, sa Sep, +0.1%, f/c 0.2%, 0.1%-prev * US Core CPI y/y, nsa Sep, +1.7%, f/c 1.8%, 1.8%-prev * US Real weekly earnings m/m Sep, -0.1%, f/c 0.2%, +0.5%-prev * DE CPI prelim m/m Oct, -0.2%, f/c 0.0%, 0.0%-prev * DE CPI prelim y/y Oct, 1.2%, f/c 1.4%, 1.4%-prev * Reuters Poll ECB will announce a new round of cheap long term loans for banks 44/15 economists * Reuters Poll ECB refinancing depo rates stay on hold until at least early '15 * Reuters Poll 46/53 economists say bank of England will bring forward its expectation for when unemployment will reach 7% * CH UBS Sep Consumption 1.56 vs 1.32 prev * CH KOF Oct 1.72 vs 1.53 prev, 1.60 exp * DE Oct jobless 6.9% s/adj vs 6.9% prev, 6.9% exp * EZ Oct Bus Climate -0.01 vs -0.20 prev, -0.15 exp * EZ Oct Econ Sent 97.8 vs 96.9 prev, 97.3 exp * EZ Oct Cons Sent -14.5 vs -14.9 prev, -14.5 exp * EZ Oct Ind Sent -4.8 vs -6.7 prev, -6.5 exp Themes from Wednesday * The main theme across all asset markets on Wednesday was the market seeing the FOMC statement following the "no change" decision as being more hawkish than expected and perhaps leaving the door open for the commencement of tapering their bond buying program before the end of Q1 2014 - as the market was previously pricing in. * Wall Street sold off, USD spiked higher and US Treasury yields staged a volatile reversal higher in the aftermath of the somewhat benign Fed statement. * While the Fed statement wasn't hawkish by any stretch - the market keyed on two comments within the statement as being less dovish than may were expecting. * The market saw this comment ("Taking into account the extent of federal fiscal retrenchment over the past year, the Committee sees the improvement in economic activity and labour market conditions since it began its asset purchase program as consistent with growing underlying strength in the broader economy") as downplaying the impact of the US government shutdown and debt ceiling debate. * Analysts also noted the Fed removed the September statement reference to tighter financial conditions in the economy - which was viewed as one of the reasons the Fed didn't taper in September. * The biggest reaction was in the US Treasury market - with the 10-yr US Treasury yield jumping to 2.54% from 2.47% in the wake of the Fed statement. * The 10-year Treasury yield was pushed down to 2.47% from Tuesday's 2.50% close earlier in the session following a successful 7-year auction; weaker than expected US ADP jobs data and benign core-CPI data. * The 10-year US Treasury yield settled at 2.52% late in the US session - up from 2.50% at Tuesday's close. * It was a jumpy day on Wall Street, but the moves were relatively small. The S&P was 0.2% higher early in the session before easing to be down around 0.2% just before the FOMC statement. After the statement the S&P spiked lower to be down 0.8% before closing down 0.5%. * The US dollar spiked around 0.5% higher following the Fed statement. * USD/JPY popped from 98.15 to 98.69 in the wake of the Fed statement as the price action followed the move up in US Treasury yields. USD/JPY closed at 98.53 - up 0.4% from Tuesday's close. * EUR/USD was up before the Fed event, as the weaker US ADP jobs data and lower US Treasury yields pushed the pairing to 1.3787 at one stage from Tuesday's close at 1.3746. * EUR/USD was trading at 1.3775 just before the Fed statement and then proceeded to plummet to 1.3696 - triggering stops below 1.3710 and 1.3700 along the way. EUR/USD closed at 1.3735 barely changed on the day. * AUD/USD spent most of Wednesday in recovery mode and traded as high as 0.9517 in Europe. It was trading around 0.9500 before Fed statement and proceeded to spike down to 0.9441 after the statement when stops below 0.9450 were tripped. AUD/USD recovered to close at 0.9482 - unchanged on the day. * The most volatile currency was NZD/USD. It fell from 0.8260 to 0.8193 after the less dovish than expected Fed statement and then soared to 0.8278 after the more hawkish than expected RBNZ statement. * Commodities were mixed by the end of the day. * Gold was riding high for most of the day and traded as high as 1,359 ahead of the FOMC. As was the case with other assets - there was a sharp knee-jerk reaction to the Fed statement and gold was slammed down to 1,334. The price recovered a bit late in the day and looked set to close at 1,342 - little change from Tuesday's close at 1,342. * Copper shot higher before the FOMC event and held on to the gains when everything else corrected following the Fed statement. Copper was supported by tight supply concerns and evidence of Chinese demand. Late in the US session copper was up 1.35%. * NYMEX Crude went in the opposite direction and fell over 1.5% after US govt data showed large inventory builds. The spread between NYMEX Crude and Brent Crude is widening at a more rapid pace - as Brent Crude rose 0.8% on the day. * The US dollar index was last trading at 79.75 up 0.2% on the day.

A closer look at the FX market EUR/USD traded with a bid tone in early Europe and pushed past 1.3750 to 1.3768. EUR/USD was trading around 1.3760 when the US market arrived and chopped between 1.3744 and 1.3778 - led by EUR/JPY flows. EUR/USD traded up to the day's high at 1.3787 just prior to the Fed statement and then proceeded to plummet to 1.3696 - triggering stops below 1.3710 and 1.3700 along the way. EUR/USD closed at 1.3736 - down tiny. USD/JPY was relatively stable in a 98.06/98.28 range prior to the Fed statement. USD/JPY popped from 98.15 to 98.69 in the wake of the Fed statement as the price action followed the move up in UST yields. USD/JPY closed at 98.53 - up 0.4%. AUD/USD spent most of Wednesday in recovery mode and traded as high as 0.9517 in Europe. It was trading around 0.9500 before the Fed statement and proceeded to spike down to 0.9441 after the statement when stops below 0.9450 were tripped. AUD/USD recovered to close at 0.9482 - virtually unchanged on the day. NZD/USD fell from 0.8260 to 0.8193 after the less dovish than expected Fed and then soared to 0.8276 after the more hawkish than expected RBNZ statement. Wrap-up The Fed didn't give too much away in their statement and the fact there wasn't a Bernanke press conference afterwards made the event that much more cloudy. Fed statements have tended to be more hawkish than the markets expect due to the fact it reflects a wider view at the Fed rather than solely expressing the views of the dovish core of the FOMC voting committee that ultimately calls the shots. The Fed statement was little changed from the Sept statement and indicates the Fed remains data dependent regarding scaling back their bond purchasing efforts. The US data hasn't been too great lately - so it will hard for the market hawks to build a case for Fed tapering at the Dec FOMC meeting - at this stage anyway.

Sentiment towards the USD has turned bullish and the market is looking for excuses to buy US dollar. It is interesting to note EUR/USD fell to 1.3696, which is precisely the 38.2 fibo of the 1.3472/1.3833 move. EUR/USD is now locked between two key fibo levels - the 61.8 of the longer-term 1.4940/1.2043 move at 1.3833 and the 38.2 of the shorter-term 1.3472/1.3833 move at 1.3696.

With the Fed and RBNZ out of the way - the BOJ decision will be the next central bank event. The market isn't expecting anything special - so it shouldn't be a key event for markets. The key will be the Tokyo reaction to the move up in USD/JPY and the reaction in Asian equity and currency markets to the hawkish interpretation of the Fed statement. The prospect of Fed tapering is unsettling for emerging markets so there might be a "risk-off" mood during the Asian session. ASIAN CURRENCY OUTLOOK USD/AXJ is set to open slightly higher from the Asian close after a volatile offshore session in the wake of the FOMC meeting. Initial reactions to the statement proved incorrect with a violent reversal then ensuing as analysts suggested that the statement was not as dovish as everyone has expected. The chances of QE tapering in the Dec to Jan window have increased by around 30% according to CitiWire. Wall Street fell modestly in response but showed no real signs of concern. The market has been keen to buy US Dollars this week and indeed the moves may well have been bigger except for month end. Once we get past today the US Dollar could be primed for a strong run higher as taper expectations' are reviewed and rebuilt. USD/KRW traded a modest 1060-1062.8 range in Asia on Wednesday; last at 1060.2. The pair opened at 1062 and showing once more little inclination in travelling too far in either direction. Month end exporter sales cap the topside whilst players were wary of drawing the ire of BOK by attempting a break of 1060. The Kospi was last up 0.4%. Overnight the implieds traded a 1063.5-1065.5 range on high volume; last in NY 1064.5/1065. USD/SGD traded a 1.2380-1.2426 range in Asia on Wednesday; last at 1.2384. The pair opened at 1.2410 and after the usual early rally spent the rest of the session "dumping" US Dollars reportedly on month end flows. Straits Times last up 0.7%. USD/MYR traded a 3.1470-3.1640 range in Asia on Wednesday; last at 3.1515. The KLSE index last up 0.1%. Overnight the implieds traded a 3.1475-3.1550 range on high volume; last in NY at 3.1535/50. USD/IDR traded an 11120-11210 range in Asia on Wednesday; last at 11175. The Jakarta Interbank Spot Dollar Rate (JISDOR) was set on Wednesday at 11161. The IDX Composite last up 0.3%. Overnight the implieds traded a 10920-10950 range on high volume; last in NY at 10930/10950. USD/PHP traded a 43.10-23 range in Asia on Wednesday; last at 43.10. The PSE index closed up 0.8%. Overnight the implieds traded a 42.99-43.09 range on high volume; last at 43.08-10. USD/THB traded a 31.055-105 range in Asia on Wednesday; last at 31.077. The Set index last down 1.7% on renewed political concerns. USD/TWD traded a 29.385-434 range in Asia on Wednesday; last at 31.386. The Taiex index last up 0.5%. Overnight the implieds traded a 29.36-39 range on high volume; last in NY at 29.38/39. USD/CNY was set in Asia on Wednesday at 6.1412 slightly higher than the previous 6.1373 fix. The OTC market traded a modest 6.0908-6.0950 range; last at 6.0938. USD/CNH last at 6.0822 - range 6.0817-6.0845. The 1-yr NDF was last quoted in Asia at 6.1550/6.1560. The Shanghai Composite up 1.5%. There were no recorded 1-yr deals on Wednesday night last in NY at 6.1550/70. USD/INR traded a 61.23-60 range in Asia on Wednesday; last at 61.23. The pair opened at 61.44 and tried the topside first off to no avail. From here it was one big grind on the downside as month end flows dictate direction. Also weighing was the announcement of diesel price increases. The Sensex closed up 0.5%. Overnight the implieds traded a 61.79-95 range on high volume; last 61.90/03. Looking Ahead - Economic Data (GMT) Oct 31 21:00 NZD RBNZ policy rate Oct 31 21:45 NZD Building consents Oct 31 23:13 JPY Manufacturing PMI Oct 31 00:00 NZD NBNZ business outlook Oct 31 00:01 GBP Gfk con confid Oct 31 00:30 AUD Building approvals Oct 31 00:30 AUD Private house approvals Oct 31 00:30 AUD Private sector credit Oct 31 00:30 AUD Housing credit Oct 31 00:30 AUD Export prices Oct 31 00:30 AUD Import prices Oct 31 00:30 TWD GDP Oct 31 02:00 SGD Bank lending Oct 31 02:00 SGD Preliminary unemployment Oct 31 03:00 JPY BOJ policy rate Oct 31 05:00 JPY Construction orders Oct 31 05:00 JPY Housing starts Oct 31 05:00 SGD Business expectations Oct 31 07:30 THB Exports Oct 31 07:30 THB Imports Oct 31 07:30 THB Trade account Oct 31 07:30 THB Current account

A closer look at the equity market * Major European equity markets were flat to slightly lower in very quiet trading ahead of the FOMC event. Peripheral markets fell after outsized gains on Tuesday. * The London FTSE closed up tiny; the German DAX and French CAC closed down 0.1%; Milan fell 0.5% and the Spanish IBEX closed down 0.86%. * It was a jumpy day on Wall Street, but the moves were relatively small. The S&P was 0.2% higher early in the session before easing to be down around 0.2% just before the FOMC statement. After the statement the S&P spiked lower to be down 0.8% before closing down 0.5%. * The VIX index closed at 13.65 up slightly from Tuesday's close at 13.41. * The MSCI LATAM Index eased 0.1%.

A closer look at the commodity market * Commodities were mixed by the end of the day. * Gold was riding high for most of the day and traded as high as 1,359 ahead of the FOMC. As was the case with other assets - there was a sharp knee-jerk reaction to the Fed statement and gold was slammed down to 1334. The price recovered a bit late in the day and looked set to close at 1342 - little change from Tuesday's close at 1342. * Copper shot higher before the FOMC event and held on to the gains when everything else corrected following the Fed statement. Copper was supported by tight supply concerns and evidence of Chinese demand. Late in the US session copper was up 1.35%. * NYMEX Crude went in the opposite direction and fell over 1.5% after US govt data showed large inventory builds. The spread between NYMEX Crude and Brent Crude is widening at a more rapid pace - as Brent Crude rose 0.8% on the day.

A closer look at the fixed interest market * Yields between peripheral EZ countries and Germany widened slightly on Wednesday to correct a narrowing trend of late. * The 10-yr Italian bond yield closed at 4.19% up from 4.14%; the Spanish 10-yr yield closed at 4.07% up slightly from 4.05%; the 10-year German bund yield eased to 1.69% from 1.73%. * The biggest reaction to the perceived "less dovish than expected Fed statement" was in the US Treasury market - with the 10-yr UST yield jumping to 2.54% from 2.47% in the wake of the Fed statement. * The 10-year Treasury yield was pushed down to 2.47% from Tuesday's 2.50% close earlier in the session following a successful 7-year auction; weaker than expected US ADP jobs data and benign core-CPI data. * The 10-year US Treasury yield settled at 2.52% late in the US session - up from 2.50% at Tuesday's close. OVERNIGHT RANGES---------------------------INTRADAY RANGES - Close 21:00GMT NDFS OPEN HIGH LOW LAST VOL CURRENCY HIGH LOW CLOSE IDR 10910 10980 10920 10980-11000 Hi USD/JPY 98.69 98.06 98.53 INR 61.87 61.86 61.58 61.76-79 Hi EUR/USD 1.3787 1.3696 1.3735 KRW 1063.3 1063.8 1061 1062-1063 Hi EUR/JPY 135.45 134.76 135.37 MYR 3.1475 3.1630 3.1480 3.1605-25 Hi GBP/USD 1.6079 1.5999 1.6040 PHP 43.05 43.05 42.98 43.05-06 Hi USD/CAD 1.0497 1.0441 1.0480 TWD 29.33 29.37 29.33 29.36-37 Hi AUD/USD 0.9517 0.9441 0.9482 CNY 1-mth 6.1375 6.1355 6.1370-80 NZD/USD 0.8287 0.8193 0.8268 CNY 3-mth Dealt 6.1345 6.1355-75 USD/SGD 1.2426 1.2356 1.2395 CNY 1-yr 6.1580 6.1550 6.1565-85 USD/THB 31.14 31.03 31.10 Equities Close Change %Change UST(Yields) Close Previous DJIA 15619 -61 -0.39 10-year 2.54% 2.50% S&P 500 1763 -9 -0.49 2-year 0.31% 0.32% Nasdaq 3931 -21 -0.54 30-year 3.64% 3.61% FTSE 6778 +3 +0.05 Spot Gold($) 1345.00 1345.00 DAX 9010 -12 -0.13 Nymex 96.68 97.91 Nikkei 14502 +176 +1.23 Brent 109.89 108.96 (Reporting by John Noonan and Peter Whitley)