Capital Markets: "Powell Lets Steam Out of Equities and Spurs Dollar Short-Covering"

From Marc to Market:

Overview: Profit-taking after the FOMC meeting saw US equities and gold sell-off. The high degree of uncertainty without fresh stimulus did not win investors' confidence. The Fed signaled rates would likely not be hiked for the next three years, and without additional measures, that appears to be the essence of the switch to an average inflation target. The MSCI Asia Pacific Index snapped a five-day advance, with several markets (Australia, Hong Kong, South Korea, and Malaysia off over 1%). The Dow Jones Stoxx 600 in Europe is ending a four-day rally and has halved this week's gains with about an 0.6% loss through late morning turnover. Financials and materials have been sold off the hardest. US shares are weaker, and the S&P 500 and NASDAQ are poised to gap lower at the opening. European bond yields are 1-2 bp higher, while the 10-year US Treasury yield is little softer at 0.68%. The dollar is mostly higher, with the yen and sterling the only majors resisting the greenback's pull. Its initially stronger gains have been pared, and only the Scandis and the Canadian dollar are off by more than 0.2%. Emerging markets currencies are also under pressure, with Turkey, Mexico, and South African (which is expected to announce a 25 bp rate cut shortly) the weakest. Gold has been set back but recorded am marginal new low for the week ($1937) October WTI rallied almost 5% yesterday, the most since June, bolstered by shrinking US inventories, which are the lowest since April. It is consolidaitng today and straddling the $40 a barrel level.

Asia Pacific
As widely expected, the BOJ did not alter its stance or its bond-buying operations. It did upgrade its economic assessment for the first time since the pandemic struck. The market recognizes a recovery is underway after three consecutive quarterly contractions. Assistance to the corporate sector remains a critical concern. However, Governor Kuroda does not appear poised to initiate new measures. The dollar was near JPY105 when Kuroda's press conference began and eased to the session low near JPY104.70 during the talk. It remained pinned near there during the European morning. August CPI will be reported tomorrow, and the core rate, which excludes fresh food, is expected to fall to -0.4% from flat in July. It would be the lowest since 2016.

Australia offered a pleasant surprise. Rather than lose 35k jobs as economists forecast in the Bloomberg poll (median), it gained 111k jobs. The unemployment rate slipped from 7.5% to 6.8%. Economists had expected it to have ticked up to 7.7%. The participation rate ticked up (64.8%) rather than slip. Full-time positions grew by 36.2k, roughly the same pace as in July. Given the central bank's somber assessment and the outbreak in Victoria, one cannot help but wonder if the proverbial other shoe is yet to drop....

....MUCH MORE