From Marc to Market:
Overview: The market's reaction to the FOMC statement was going according to our script, with the dollar backing off on a buy rumor sell the fact type of activity until Powell provided an end date for the tapering (mid-2022) before providing a start date (maybe next month). This spurred a dollar rally. Equities pulled back but recovered. The dollar is paring its gains today. It is lower against the other major currencies, but the yen, and the euro, which had fallen to $1.1685, is back above $1.1700 despite disappointing eurozone flash PMI. Emerging market currencies are also higher as the outcome of the South African central bank, and Turkey central bank meetings are awaited. The Bank of England's announcement is expected shortly. The Swiss National Bank stood pat as widely expected, and Norway delivered the anticipated 25 bp rate hike and signals another one is likely at the end of the year. The US 10-year yield is up a few basis points near 1.34%, while European yields are 1-2 bp higher. Equities closed strong in the US, and the futures are pointing to a higher opening. Europe's Dow Jones Stoxx 600 (~+1%)is advancing for a third session and is poised to snap a three-week downdraft. Japan's markets are closed for a holiday, but most other markets in the region advanced, including notable Hong Kong's Hang Seng, led by a 4.6% rally in the real estate sector. Gold initially extended its rally on the FOMC statement, but the hawkishness saw it reverse from $1787 to about $1765 and today found support near $1760. It is straddling little changed levels in Europe. Oil, driven by the seventh weekly drawdown of US oil inventories, which now stand at their lowest level in three years, pushed against $72 yesterday and is firm near $$72.50. Iron ore prices in China and Singapore rallied. China's contract snapped an eight-session slide. Copper prices rallied 3% yesterday and are giving back a little more than a third of it today.
Asia Pacific
The Evergrande saga continues to play out, and the anxiety seen Monday and claims of a "Lehman moment" have died down. A dollar payment is due today, and recall that there is a grace period. The direct contagion outside of China seems limited, and many observers may underestimate the "non-market" mechanisms that can be deployed. Moreover, with next week's holiday, PBOC officials have plenty of cover for additional injections of liquidity into the banking system. Today's provision of CNY110 bln (~$17 bln) was the most since early this year. This is not a call that all is clear or that it is business as usual. There are likely to be medium and long-term implications, and the humbling of the property sector in China does not appear inconsistent with the broadening of the state's control and further subjugation of the private sector. Separately, we note that China and Taiwan have both applied for membership in the CPTPP. Taiwan is a member of the WTO and APEC. Neither is poised for ascension any time soon. It does not appear to be a market factor yet.
Australia's preliminary PMI composite stabilized below the 50 boom/bust level. The September composite stands at 46.0, up from 43.3 in August, which could be the low point. It is the first gain since April and is the third month below 50. The manufacturing sector looks fine at 57.3, up from 52.0, and is at its best level since June. The lockdown has, as one would expect, crushed services. The PMI edged up to 44.9 from 42.9. There is no big implication. The Reserve Bank of Australia will lag behind the Reserve Bank of New Zealand in the rate hiking cycle. The Australian dollar is in the upper end of this week's range....
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