The positive investor sentiment displayed throughout yesterday’s North American session has seeped into the overnight Asian session, with global equities gaining on the back of renewed risk appetite.  The news that the People’s Bank of China would be injecting 500bn yuan by way of short-term liquidity provisions to the five largest banks calmed nerves around weakening growth prospects for Q3, boosting risk appetite as the PBoC engaged in its own form of ‘stealth’ QE.  As previously noted earlier in the week, even though comments from policy makers have recently been focused on supporting reform as opposed to outright stimulus, nothing is ever off the table as the government navigates a critical path towards its growth objectives for the year.  The Shanghai Comp finished its session up by 0.49%, while the Japanese Yen has given back some of yesterdays’ gains and is inching close to the mid-107 region before the North American data drop.
Focusing in on Europe, the buying exuberance in the growth-correlated asset space has provided a boost to European equities, despite the Scottish referendum risk that hangs like a dark cloud ahead of the September 18th ballot.  The Pound is diligently trying to claw back some of the steep losses experienced over the last two months, with GBPUSD poised to close the gap witnessed two weeks ago when the risk of a ‘Yes’ majority in the Scottish referendum reared its head.  Today saw the release of the minutes and vote count from the Bank of England’s monetary policy meeting from September 3-4, and not surprisingly, Weale and McCafferty were unable to mobilize the rest of the team to get on board with raising the benchmark rate, with the two dissenting again in favor of a rate hike warning that low inflation is a byproduct of a strong currency and will be transitory. Elsewhere in the UK, employment metrics for the month of July came in better than expected, with average earnings rebounding with a 0.6% rise over the prior three months when compared with the same period in the previous year.  The unemployment rate also ticked down to 6.2% from the 6.4% that was registered in June, beating the median estimate of 6.3%.  Sterling is posting a significant up day so far on the back of the news, gaining 0.3% against the big dollar and is easily the best performing of the majors at this juncture.
Heading into the North American open, the release of consumer price numbers for the month of August in the American economy are likely to have little lasting effect on overall markets ahead of the highly anticipated Fed announcement at 14:00EST.  The consolidation in the DXY yesterday was mainly attributable to the Wall Street Journal article suggesting the Fed wouldn’t be as hawkish as some participants have been expecting and the committee was likely to keep the language that rates will remain accommodating for a considerable amount of time after QE ends.  The potential for Yellen and the FOMC to remain dovish and emphasize the significant under-utilization of the labour market also helped equities rally yesterday, easing concerns the Fed may start hiking rates sooner than the majority of participants anticipate.  Make sure to speak to your dealing teams before the meeting, as there is a good chance of heightened volatility into the afternoon, especially considering Yellen will be holding a press conference after the release of the statement.  Therefore, should the Fed end up tweaking their forward guidance and dropping the highly contested statement to do with time periods, it is possibly Yellen could emphasize this is not intended to signal an advance in the timing of rate hikes, just a natural progression in forward guidance; therefore, we could see some choppy trading in USD and the associated crosses post-Fed.
Getting set for the opening bell, S&P futures are testing the waters in positive territory, while the consolidation in the FOMC to remain dovish. Headline inflation dropped by 0.2% compared to the previous month, with the annualized figure easing to 1.7% on both core and headline.  There has been a slight knee-jerk reaction with USD selling on the release, with USDCAD pulling back from its overnight grind higher as the pair slips into the mid-1.09s, but look for any sustained price action to come after market’s have deciphered the FOMC’s actions and whether there has been a significant change in sentiment.
Further reading:
US inflation disappoints – dollar slides
FOMC to remain dovish
