Oct 18, 2018, by Lorcan Roche Kelly
Yesterday’s Federal Reserve minutes showed a majority of members favored an eventual (and temporary) interest-rate move above what they deem the neutral level for the economy in the long run. The lack of dovishness in the outlook helped boost Treasury yields with the 10-year jumping five basis points in the aftermath of the publication. The hawkish tone places the central bank on a collision course with President Donald Trump who launched an avalanche of criticism against the Fed after last month’s hike.
China’s yuan fell to the lowest level since January 2017 after the U.S Treasury’s latest report on foreign-exchange rates stopped short of labeling the country a currency manipulator. The lower trading level is doing little to boost the country’s stocks, with the Shanghai Composite Index closing 2.9 percent lower even as authorities try to halt the plunge that has seen the index lose 30 percent since the January highs. The latest squeeze on China from the Trump administration is the potential U.S. withdrawal from a 192-nation treaty that gives companies from the Asian nation discounted shipping rates for small packages sent to American consumers.
In what was a well-flagged outcome, the European Union and the U.K. failed to come to an agreement at yesterday evening’s summit over the country’s withdrawal from the bloc. Prime Minister Theresa May said she could be open to extending the post-exit transition period by a “matter of months” as she battles to break the deadlock. European leaders have decided there has been insufficient progress to justify holding a summit next month, so they’re now aiming for a December meeting.
Overnight, the MSCI Asia Pacific Index dropped 0.6 percent. The Topix index closed 0.5 percent lower driven in part by China’s move to launch an anti-dumping investigation that could negatively impact Japanese machine tool-makers. In Europe, the Stoxx 600 Index was 0.2 percent higher at 5:45 a.m. Eastern Time with Spanish banks taking a hit after Banco Santander SA was added to the list of lenders targeted in a German tax probe. S&P 500 futures pointed to a lower open, the 10-year Treasury yield was at 3.213 percent and gold was slightly higher.
It’s Thursday, so we get weekly jobless claims data at 8:30 a.m. with expectations at the 212,000 mark. Investors looking for further monetary guidance may get a more dovish interpretation of the outlook when Federal Reserve Bank of St. Louis President James Bullard – who has expressed doubts about the need for more rate hikes – speaks at 9:05 a.m. Fed Vice Chairman for Supervision Randal Quarles is also set to deliver a talk on the economic outlook at 12:15 p.m.