Asian Equities: The FED and Geopolitics Drive the Majors

The Key Drivers

In spite of last month’s 25 basis point rate cut, the dollar found support off the back of minutes release and clung on to Wednesday’s gains. At the time of writing, the Greenback was up by just 0.01% off the back of a 0.11% rise from Wednesday.

U.S Treasury yields also held relatively steady suggesting that the FED’s unlikely to be delivering a series of rate cuts, despite the U.S President’s demands.

The FOMC meeting minutes failed to point to further rate cuts down the road. The rate cut was described as a recalibration of the stance of policy or mid-cycle adjustment. The first rate cut since 2008 was delivered to better position the overall stance of policy to help counter the effects of weak global growth, trade policy uncertainty and to promote faster inflation.

While the FED delivered on the rate cut, members had noted that there had been some improvement in economic conditions.

In spite of the more optimistic sentiment towards the economy, 2-year and 10-year Treasury yields had briefly inverted before reversing.

The FED may not have delivered what markets had been in search of, but, the minutes did suggest a more adaptable stance towards the economic environment.

It wasn’t just the minutes that influenced through the early part of the session, however. A reiteration of Tump’s lack of interest in reaching a trade deal with China also influenced. There was also talk of further U.S tax reforms to support the U.S economy.

The Stats

On the data front, prelim August Private Sector Composite PMI out of Japan provided direction early on.

The Manufacturing PMI disappointed, in spite of a marginally slower rate of contraction in August. A more material fall in new export orders weighed on the Nikkei. The Nikkei had been up by as much as 0.55% ahead of the numbers.

If anything, the fall in new export orders was a reminder of the effects of the ongoing trade war.

It wasn’t all doom and gloom, however. Service sector activity picked up midway through the 3^rd quarter.

The Majors

The ASX200 index and Nikkei index closed out the day in positive territory, with gains of 0.29% and 0.05% respectively.

The prospects of an extended U.S – China trade war, the addition of Huawei affiliates to the blacklist and political unrest in HK continued to weigh on the Hang Seng.

From the bond markets, spreads between 10-yr and 2-yr Treasury yields failed to widen. The lack of movement also tested the market’s resolve.

At the time of writing, the Hang Seng was down by 0.89%, while the CSI300 was up by  0.29%. Stocks with revenue derived primarily from HK weighed on the Hang Seng on the day.

The article was written by Bharat Gohri, Chief Market Analyst at easyMarkets