​FOMC minutes settle nerves

FOMC to stick to 50bps moves

The FOMC Minutes, released overnight, settled a few nerves temporarily, signalling another couple of 50bps rate hikes in June and July before a pause in September. The dreaded 75bps hike threat was off the agenda and with some slowdowns in recent US data, notably in the housing market, it was enough to spur a relief rally of sorts in US equities and the US dollar.

Once again, that is translating to an uneven response by Asian markets thanks to China nerves. Although Shanghai seems to be emerging from its covid zero restrictions at a faster pace, Chinese Premier Li warned of economic headwinds and that the economy, in some respects, is faring worse than in 2020.

This morning, the Bank of Korea hiked policy rates by 0.25% as expected. There has been zero impact on either the Kospi or the Korean won, suggesting the move was well priced in already by markets. The Reserve Bank of New Zealand’s Governor Orr was also on the wires today testifying before a parliamentary committee. Governor Orr was very hawkish and suggested that policy rates would need to remain elevated for an extended time to tame inflation.

It’s a pity he didn’t think the same thing 9 months ago when he had rates at zero and was quantitatively easing into a clearly overheating economy. Once again, the New Zealand dollar has barely reacted and has come off its highs since yesterday’s 0.50% rate hike. That implies that it is a US dollar story and not a New Zealand dollar story. Either that or markets are concerned New Zealand is heading for a recession.

Australian data this morning was mixed. Building Capital Expenditure for Q1 QoQ fell by 1.70%, while Plant Machinery Expenditure rose by 1.20% for the same period. To a certain extent, it is old news with markets more focused on the RBA policy trajectory, the new government’s fiscal policy, and whether the employment of housing markets start to show cracks.

Singapore releases Industrial Production for April this afternoon with the YOY number for April expected to slow to 3.40%. A softer number will increase slowdown fears in the city-state and weigh on local equities. Thailand’s Balance of Trade should continue to show a post-covid rebound as its borders reopen for tourism.

There are a number of holidays in Europe today for Ascension Day. Heavyweights Germany and France are closed, as is all of Scandinavia. Indonesia is closed today as well. That is likely to mute activity in Europe this afternoon with the data calendar understandably, strictly second-tier.

In the US, Pending Home Sales will be closely watched given the weakness of recent existing and new home sales. That will overshadow second estimate of Q1 GDP and initial jobless claims. Another ugly number will put the recession word back on Wall Street’s lips and we could see another rush for the exit. Soft results from Gap and Dollar Tree could reinforce that sentiment.

Overall, though, it looks as if today will be a day of consolidation for financial markets as they await fresh inputs, and ahead of personal income and expenditure data out of the US tomorrow evening.

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