Asian markets are set to start the day on the back foot as the FOMC meeting came and went in line with general market expectations and had little affect on overall sentiment. We’re still on line for two more rate hikes in the US this year with a September hike fully priced in and a December one 60% on the cards according to the futures market. The US 10 year yield did pop up to 3% again for the first time since June and the dollar rose against most of the majors. Not for the first time, trade concerns and uncertainty is weighing on the market and we saw a negative day for most of the worlds equity indices yesterday with risk trades dropping accordingly.
Markets are now wary of the next step in Trade War between the US and China, a further war of words is in the offing but there is little doubt that tariff implementation is starting to hit global data. With the US threatening to increase tariffs to 25% from 10% and the Chinese vowing not to react to ‘blackmail’ to get them back to the negotiating table, this could be the catalyst that tips sentiment and some markets into a tailspin to the downside especially as we enter the lower liquidity holiday trading season.
So, once again the markets will start the day in a negative frame of mind having eased through the Fed meeting and announcement and reverting back to sentiment driven moves. In the Asian session, the focus will move to Australia this morning with the Trade Balance data due and market expectation sitting at 900mio. The Aussie isn’t expected to react too hard unless the print comes out drastically different to expectation and should continue to trade with the ebb and flow of market sentiment over the next few sessions.
The big event today for the markets comes in the London session with the latest Bank of England rate decision due, it’s widely expected that the MPC will raise rates by 25bps and this is well priced into the market. As long as we do get the promised rise, the focus will be on the detail, the vote expectation sits at 8-1 and comments from Governor Carney 30 mins later are likely to cause more volatility than the rate announcement. Sterling and Cable in particular has been notably calm for the last couple of weeks so this event could be the one that brings it back to it’s normal volatile self.
It’s a quiet day in terms of fundamental data in the US session today but expect moves across the products as the market looks for anything new on the US – China trade spat and it sets itself for tomorrows Non-Farm Payroll release.