London Open: Fed fails to move the needle

Australia Jobs report

Australia's employment data for August came in stronger than expected, with employment +111k (cons: -35.0k). But the split between full-time (+36.2k) and part-time (+74.8k) isn’t what the RBA would want to see, with part-time employment driving the headline increase.

Still, AUDUSD looks well supported here. The labor market recovery will be long but isn’t necessarily in worse shape than Australia's G10 peers. A substantial recovery in iron ore prices, the Fed's new policy framework, plus the persistent downtrend in USDCNH are important supporting AUD factors

The Fed didn’t move the needle

Outside of fast money looking to bang Asia open lower, as a gauge of success in delivering the Fed's new policy framework Wednesday's statement and press conference failed to generate significant cross-asset moves. Not extending Treasury purchases was the hawkish surprise from the Fed and should drive real yields higher and gold and other commodities lower in the near term, with the rally in EURUSD stalling in particular.

Asia FX

Beyond the near term, particularly for CNH centric currencies – along with a number of Asia "high yielders” – it’s hard to look past USD weakness from a central bank that will allow inflation to run 'hot,' as the labor market heals against the backdrop of a large external deficit. 

The Bank of England, Bank Indonesia, and Bank of Japan are also in focus today. While no policy changes are expected, dovish surprises from the BoE and BI in their respective economic assessments could lower the GBP and IDR. 

Korea seemed to have again managed to flatten the epidemic curve of the latest wave of Covid-19 within 30 days. New daily cases have dropped to around 100 in recent days vs. close to 450 at the peak on August 27. The government lowered social distancing restrictions to Level 2 for the capital area on September 14, though many activities are still restricted under this requirement. The fall in case counts will be music to both the KOSPI and WON's ears. 

Primary views 

Oil 

As far as post-JMMC impact goes, beyond reaffirming compliance and perhaps some resolution on catching up quota volumes, we should expect limited new news and certainly nothing to significantly bump the crude market out of its current funk and push brent back to $45 bbl. And, judging by the dismal read on the latest US retail sales data, by no means are we over the hump just yet as there’s a lot more wood to chop on the economic front.

Gold 

The market remains more assured about the FOMC's ability to anchor rates lower for longer than they do about central bank policy to trigger inflation. And with no twist to QE to provide the hawkish surprise, it should push yields higher and gold lower. 

Forex

And with EURUSD running out of steam again at 1.1900, there’ll be more disappointment this time around, suggesting a more lasting fade of the recent spat of USD weakness. Indeed, along with increasing new Covid-19 cases in Europe, new regional lockdowns and ECB comments on the currency, it could eventually bring bullish EUR positions to a halt and even reverse in the short.