Halister News

Economic Release Details: {BOJDPRLT Index ECOD} --KYOKO SHIMODOI

(Bloomberg) -- Bank of Japan is expected to keep policy unchanged and if the vote is unanimous, it could underscore monetary policy divergence with the U.S. and push USD/JPY higher, says Shigeki Yoshitoshi, head of Japan foreign exchange and commodities sales at Australia & New Zealand Banking Group Ltd. in Tokyo.

• BOJ’s expected decision to keep policy unchanged itself won’t be a trading factor
• Unanimous vote could provide a tailwind to USD/JPY, potentially pushing it towards 113
• NOTE: Board members Kiuchi and Sato, who were consistent dissenters, have completed their term with their last policy meeting attendance in July
  • New board members Kataoka and Suzuki vote for first time
• Markets seem to be catching up after confirming Fed’s stance for a December rate hike, as probability seen by markets is rising to around 70%
• Start of balance sheet reduction is likely to work to push yields higher
• USD/JPY may test 114 levels in the near-term and could try 115 by the end of year
• Geopolitical risks and U.S. political uncertainties are factors weighing on the dollar
• Focus from now will be on comments from senior ECB officials, with markets looking for signs of its future plan for asset buying or change in forward guidance, which may support the euro and cap the dollar

--With assistance from Chikako Mogi. To contact the reporter on this story: Daisuke Sakai in Tokyo at dsakai2@bloomberg.net To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net Patricia Lui

Economic Release Details: {NZNTGDPC Index ECOD}

(Bloomberg) -- FX and rates markets were looking for a more dovish message in the Fed’s dot plot, which didn’t happen, State Street strategist Lee Ferridge says in phone interview.

• Fed announcement "fairly benign and expected," market reaction was surprising; makes sense for Fed to give itself optionality, and expectation for Fed to remove its 2017 hike from the dot plot "was a bit naïve"
• Market will probably realize its reaction was overdone; EUR/USD should see bottom not far from post-Fed levels and drift back toward 1.20
• Lowering of the terminal fed funds rate to 2.75% from 3% is most significant thing from FOMC today
  • Fed has continuously lowered its terminal fed funds rate forecast without much discussion; "at some point you’ve got to start questioning the models"
  • Ferridge says terminal rate probably closer to 2% area
• Doesn’t expect Fed to raise rates again this year as "data isn’t there"

To contact the reporter on this story: Alexandria Arnold in Seattle at abaca3@bloomberg.net

(Bloomberg) -- The Fed’s rate forecasts and statement struck a more hawkish tone than markets expected, analysts said in published research and interviews; central bank’s balance-sheet runoff may mean greater volatility going forward and higher yields over the next few years, said Charles Schwab’s Kully Samra and Mitsubishi UFJ’s Chris Rupkey.

• The dollar surged, while Treasuries slid, after the Fed set an October start for shrinking its balance sheet and stood by forecast for one more rate increase later this year; U.S. stocks were mixed; MORE
• NOTE: After FOMC’s statement was released at 2pm ET, market-implied odds of a rate hike in December moved to 58% vs ~45% just prior to the decision, based on Fed-dated OIS levels and 1.16% Fed effective rate

CIBC (Bipan Rai, in interview) 

• “The market has been caught wrong-footed in assuming that the Fed wouldn’t be raising rates again this year”
• Monitoring EUR/USD in 1.1850/75 area
• “A break below that mark would suggest a deeper corrective move is in play”  

Mizuho Bank (Sireen Harajli, in interview)

• FOMC decision will boost USD as markets reprice higher chance of December hike
• Expects USD/JPY to reach 115 by year-end on widening yield differentials 
  • “Yields are higher and the USD is stronger overall, which is consistent with the the December hike remaining in play”  
  • “At the same time, we believe that the EUR will continue to gain traction on better fundamentals and ECB tapering”

Mitsubishi UFJ (Chris Rupkey, in note)  

• Fed’s balance-sheet unwind may mean that 10Y UST yields go 40bps higher over the next few years; 10Y yields have already started their climb

Renaissance Macro (Neil Dutta, in note)

• “Not surprised” by market’s response, with bonds and equities selling off
• “We’ve long argued that the main threat to stocks is higher rates, not earnings”

Schwab (Kully Samra, in note)

• Fed’s “quantitative tightening” could cause volatility, given its impacts on economy are unknown
• Bull market should continue with “robust” data and solid corporate earnings
• MORE

TD Securities (Mark McCormick, in email)  

• Market was expecting a more dovish Fed
• Core view remains to fade dollar rallies; would look to buy EUR/USD on further pullbacks
• December hike depends on pricing and U.S. data outperformance, which will be “tricky” given distortions from recent storms

Bloomberg Intelligence (Carl Riccadonna, Yelena Shulyatyeva, Richard Yamarone, in note)  

• Biggest surprise was the adjustments to economic forecasts, which now call for stronger growth this year, a deeper plunge below full employment, and a longer timeline to achieving 2% inflation
• Policy makers are aiming for “as smooth of an execution as possible” and trying to avoid repeat of 2013 taper tantrum
• MORE

Evercore (Krishna Guha)

• Statement and projections are “hawkish on net”
• While FOMC signaled it will move forward on rates, it has “less distance to travel than it previously estimated”
• MORE

--With assistance from Lananh Nguyen and Katherine Greifeld. To contact the reporter on this story: Vivien Lou Chen in San Francisco at vchen1@bloomberg.net To contact the editors responsible for this story: Boris Korby at bkorby1@bloomberg.net Joanna Ossinger