CURRENCY MARKET WRAP
As of Wed Sep 18th, Singapore Time zone UTC+8
U.S. Dollar Index, -0.41%, 98.20
USDJPY, -0.04%, $108.10
EURUSD, +0.66%, $1.1075
GBPUSD, +0.58%, $1.2502
USDCAD, +0.04%, $1.3242
AUDUSD, +0.01%, $0.6866
NZDUSD, +0.24%, $0.6360
U.S. Industrial production increased 0.6% m/m in August (consensus +0.1%), which was much stronger than expected and followed an upwardly revised 0.1% decline (from -0.2%) in July. Total capacity utilisation ran at 77.9% (consensus 77.5%), up from 77.5% in the prior month.
After spiking nearly 15% yesterday, WTI crude ($59.37/bbl, -3.15) pulled back 5.0% after Saudi Arabia said it intends on restoring full oil production by the end of September. In addition, the repo rate spiked as high as 10% today on no specific catalyst.
Regarding the repo rate volatility, DoubleLine Capital founder Jeffrey Gundlach said this makes it more likely the Fed will start with asset purchases again (i.e. “QE Lite”) “pretty soon.” Presumably, this view, which was reported by Reuters late in the session, contributed to increased buying interest into the close. The New York Fed trading desk had set a target of up to $75 billion in securities. An effort Tuesday to run a 15-minute operation at 9:30 am had to be postponed due to technical difficulties but had resumed at 9:55 am, concluding at 10:10 am. The purchases involved about $40.8 billion of Treasurys, $11.7 billion in mortgage-backed securities and $600 million in agency debt. The Treasurys and MBS, which constitute the bulk of the Fed’s balance sheet, had low yields of 2.1% each, while the agency low yield was 3%. The Treasurys and MBS were within the Fed’s target range of 2%-2.25%. The midpoint of transactions in the overnight money markets hit the upper limit of the 2.00-2.25% target range. Overnight financing is the key to driving the economy.
The 2-yr yield and the 10-yr yield declined three basis points each to 1.73% and 1.81%, respectively. The U.S. Dollar Index lost 0.41% to 98.20.
RBA Minutes showed the central bank would consider additional easing if needed to support growth and achieve its 2% to 3% inflation target. Markets are fully priced for another rate cut to 0.75% by year-end, and to 0.5% by early 2020.
STOCK MARKET WRAP
S&P500, +0.26%, 3,005.68
Nasdaq, +0.40%, 8,186.02
Nikkei Futures, +0.34%, 21,837.5
The S&P 500 (+0.26%), Dow Jones Industrial Average (+0.1%), and Nasdaq Composite (+0.4%) posted small gains, while the Russell 2000 (-0.4%) underperformed amid relative weakness in the energy space.
Nine of the 11 S&P 500 sectors finished higher, led by the real estate (+1.4%), utilities (+0.9%), and materials (+0.7%) sectors. The energy (-1.5%) and industrials (-0.04%) sectors were the lone sectors to finish in negative territory. Other laggards included Nordstrom (JWN 32.10, -3.47, -9.8%), Corning (GLW 28.23, -1.82, -6.1%), and Kraft Heinz (KHC 28.36, -1.26, -4.2%).