Market Overview

There were some conflicting movements in the markets last week. Risk appetite was clearly strong in US and Europe. S&P 500 and NASDAQ ended at record highs and DOW was not far from it. Dollar was firm as investors finally got some more details about the long awaited tax reform. Treasury yield also jumped as markets were getting more confident on the bet of December Fed hike. However, the greenback was overshadowed by Swiss Franc, which ended as the strongest one for the week. Dollar was only the second best performer. Yen also ended the third strongest ones. The decoupling of risk sentiments with Swiss Franc and Yen could be partly seen as the results of quarter end position squaring. Or, it's a sign that Dollar strength was indecisive due to lack of confidence over the tax plan.

Dollar weakens pare gains as markets are heading to weekly close. In particular, Swiss Franc has overtaken Dollar's place as the strongest one for the week. Economic data from US are providing little boost for the greenback. Instead, tamer than expected inflation is weighing mildly on Dollar. And traders should be taking profit at quarter end, and ahead of next week's employment data. Meanwhile, some more time is needed to reassess the impact of US President Donald Trump's tax plan, before traders take a more decisive stance. US personal income rose 0.2% in August, spending rose 0.1%, in line with consensus. Headline PCE was unchanged at 1.4% yoy while core CPI slowed to 1.3% yoy. Both were below expectations. From Canada, GDP rose 0.0% in July, below expectation of 0.1% mom. IPPI rose 0.3% while RMPI rose 1.0% mom in August.

Dollar is losing some momentum but it's still likely to end the week as the strongest one. The initial reactions for US President Donald Trump's tax plan were positive. But markets quickly turned into cautious mode as they reassess the situation. DOW gained 0.18% to 22381.20 overnight, but stayed below 22419.51 record high made last week. S&P 500 ended at new record at 2510.06 by was kept below Thursday's high as 2511.75. 10 Year yield opened sharply higher and jumped to as high as 2.344, but pared back all gains to close flat at 2.309. In the currency markets, commodity currencies are set to end as the weakest ones. Euro, Yen and Sterling could end the week mixed.

Dollar is paring some gains today but it remains the strongest major currency for the week so far. While bond yields remains firm today, the greenback is losing some momentum. Euro and Sterling are trading firmer while commodity currencies remain weak. Released from US, initial jobless claims rose 12k to 272k in the week ended September 23, above expectation of 269k. Continuing claims dropped -45k to 1.93m in the week ended September 16. Trade deficit narrowed to USD -62.9b in August. Wholesale inventories rose 1.0% in August. Q2 GDP was revised up to 3.1% with price index unchanged at 1.0%.

The financial markets responded quite positively to US President Donald Trump's tax plan in spite of some criticisms. Most notable movements are seen in treasury yields. 10 year yield closed up 0.080 at 2.309, resuming recent rise from 2.034 and is on course to 2.396 resistance. 30 year yield also resumed recent rally and ended up 0.093 at 2.863. Stocks also strengthened with S&P 500 hitting new intraday high at 2511.75 before closing at 2507.04, up 0.41%. DOW gained 0.25% to close at 22340.71. Fed fund futures are pricing in 83% chance of December hike, up from 73% a week ago. Dollar extended this week's advance, in particular, it's picking up momentum against commodity currencies.

Dollar's rally extends in early US session after solid economic data. Headline durable goods orders rose 1.7% in August, versus consensus of 1.0%. Ex-transport orders rose 0.2%, in line with expectation. Dollar traders are keenly looking forward to US President Donald Trump's announcement of tax reform (or just tax cuts?). It's reported that corporate tax rate would be brought down from 35% to 20% level. Top individual income tax rate will also brought down from 39.6% to 35%. Trump is scheduled to deliver a speech in Indianapolis later in the afternoon to promote his plan.

Dollar remains broadly firm today, unmoved by the cautious comments from Fed Chair Janet Yellen. Traders are eagerly awaiting the long-awaited tax reform from US President Donald Trump. Meanwhile, Euro and Kiwi continue to suffer post election weakness. It's reported that German Chancellor Angela Merkel have begun the coalition talk between CDU, CSU, GDP and Greens. But the common currency could stay pressured until the picture becomes clearer. And, it's consistent with the technical development that EUR/USD is in a medium term correction that would take some more time to complete.

Dollar trades broadly higher today as markets are awaiting Fed Chair Janet Yellen's speech on inflation, uncertainty and monetary policy at the National Association for Business and Economics in Cleveland. Yellen is likely to maintain the tone that Fed is on course for gradual stimulus removal. Her comments regarding slowdown in inflation will also be closely watched. With the job market maintaining solid growth momentum, inflation is the main obstacle to another hike by Fed this year. Comments from other Fed officials are mixed so far. For example, New York Fed President Dudley just reiterated his expectation for inflation to climb back to 2% target after "idiosyncractic" factors fade. But Chicago Fed President Charles Evans is a little bit concerned that the slowdown in inflation is structural.

While Euro is staying soft, after post German election selloff, it's still holding above near term support against Dollar and Yen. Weakness is mainly seen against Sterling as 0.8773 support is taken out. Also, the common currency has not yet shown any sign of a rebound. Meanwhile, Dollar is turning slightly softer against others while Yen is picking up some strength. Mixed comments from Fed officials provided little support the the greenback. While are still pricing in more than 70% chance of a December Fed hike, the decision will remain very much data dependent. Tensions between US and North Korea remain tight as verbal exchanges between leaders continued to escalate.

Euro dips notably today in reaction to the results of Germany elections. And, the common currency is trading as the second weakest one so far, just next to New Zealand Dollar. While Angela Merkel won her fourth term as Chancellor, there are big questions and what the coalition government would be. First runner up Social Democrats are very clearly and determined to be a "strong opposition" and the "grand coalition" is ruled out. Meanwhile, the prospect of the Jamaica coalition of CDU, business friendly FDP and Greens is seen by many as having intrinsic instability. The rise of antit-EU AfD might prompt some worries over EU reforms. But AfD has already in disarray as its chair Frauke Petry walked out at a press conference and declared she won't sit with the party in the Bundestag, showing huge internal dissent.

Euro gaps lower against Dollar as another week starts. Markets seem to be dissatisfied with Germany election result even though Angela Merkel won her fourth term as Chancellor. Nonetheless, loss in the common currency is limited and it quickly recovers. Meanwhile, Kiwi also trades lower after indecisive election results. Yen is mildly weaker and risk sentiments are steady even though US President Donald Trump continued his verbal exchanges with North Korea officials. Yen traders' are probably more on Japan Prime Minister Shinzo Abe's press conference for snap election, rather than the words of the two sides that are on "suicide mission". Sterling is mildly firmer as the fourth round of Brexit negotiations starts.

There were a lot of happenings in the financial markets last week. The more hawkish than expected FOMC announce was supposed to give Dollar a strong boost. But it was the resilience of Euro that's much more convincing. New Zealand Dollar ended as the strongest one leading up to Saturday's election. Kiwi traders should be given a relief after the ruling National Party won the election, even though without outright majority. On the other hand, Canadian Dollar ended as the weakest as recent consolidation continued. Yen and Swiss Franc followed as the next weakest in an era of global monetary stimulus exit.

Yen trades broadly higher today on resurgence of geopolitical risks. North Korea threatens to launch hydrogen bomb in Pacific Ocean, in response to US President Donald Trump's "total destruction" provocation, and new sanctions. But overall, Yen is the weakest one for the week so far with risk appetite and global monetary stimulus exit in the background. This is also reflected in Swiss Franc, which is the second weakest for the week. On the other hand, Euro reversed the post FOMC selloff and is occupying the top spot among major currencies. The common currency is also getting support from solid data. Dollar is firm too but the uncertainty over the tension with North Korea is limiting its strength.

Yen recovers broadly today while Asian equities are trading generally lower as geopolitics is back haunting the markets. Tensions between North Korea and the US escalated again this week after US President Donald Trump's threat of "total destruction". This was followed by an executive order by Trump to forcefully push through trade embargo with North Korea. Then, North Korea responded by pledging to strike back with with countermeasures, including the use of hydrogen bomb. Dollar is mixed today as the boost from FOMC faded. Aussie and Kiwi are under much pressure. Aussie is still feeling heavy after China rate downgrade. Kiwi is cautious ahead of election in the weekend. On the other hand, Euro is staying firm ahead of Germany election on Sunday. Sterling is mixed a UK Prime Minister Theresa May's high profile Brexit speech is awaited.

Dollar is maintaining most of the post-FOMC gains against other major currencies. But it's turning softer against Euro and Sterling today. Better than expected job data provides no inspiration to the greenback. While developments in USD/CHF and USD/JPY are bullish, GBP/USD shows the Pound is still having an upper hand against Dollar. EUR/USD is staying well above 1.1822 support zone and maintaining near term bullishness too. Nonetheless, it's the selloff in Aussie and Kiwi that catches most eyes. RBA Governor Philip Lowe's comments suggest that he's in no hurry to follow other central banks in tightening. But the main driver is S&P's downgrade of China's sovereign credit rating.

The financial markets responded to Fed's hawkish announcement overnight rather positively. DOW gained 41.79 pts or 0.19% to close at 22412.59. S&P 500 rose 1.59 pts or 0.06% to end at 2508.25. Both indices made new record high. In short, Fed's new economic projections showed that policymakers are still projecting another rate hike in December, and three more next year. Fed fund futures are pricing in 73.4% chance of a December hike, comparing to 57.7% chance a day ago, and 48.6% a week ago. 10 year yield rose 0.034 to close at 2.277, extend recent rebound from 2.034. Dollar is now trading as one of strongest for the week among Aussie and Kiwi. Yen and Swiss Franc are trading as the softest ones. Gold dipped lower and breached 1300 handle following Dollar's strength.

Dollar jumps after FOMC kept the target range of federal funds rate at 1.00-1.25% as widely expected. Fed also confirmed that the balance sheet normalization program will be initiated in October. The Dollar positive parts of the announcement are firstly, GDP growth projection for 2017 and 2019 are revised up. Secondly, unemployment rate forecast for 2018 and 2019 are revised down. Federal fund rates projection for 2017 and 2018 are kept unchanged. That indicates Fed is still on course for another rate hike this year and three hikes next year. Nonetheless, core PCE projection for 2017 and 2018 are both revised down.

Dollar is trading broadly lower today as markets await FOMC policy decision and press conference. It's widely expected that Fed would formally announce the schedule of the long-awaited normalization of its USD 4.5T balance sheet. At the June meeting, the Fed revealed the plan to "gradually reduce" its securities holdings by "decreasing its reinvestment of the principal payments" received. More details are awaited as the plan is formalized. Inflation has remained persistently soft despite the upside surprise in the August data. We believe some members would raise concerns that weak price levels might last longer than previously anticipated. There might be downward revisions in the inflation forecast in 2018. Meanwhile, there are some speculations that the Fed might reduce its average Fed funds rates projections. Thus, the so called dot-plot will also be closely watched.

US equities surged to new records highs overnight as markets await FOMC's announcement on balance sheet normalization. DOW closed up 39.45 pts or 0.18% at 22370.80. S&P 500 gained 2.78 pts, or 0.11%, to 2506.65. 10 year yield also extended recent rebound and rose 0.014 to 2.243. But Dollar is trading generally lower in Asian session today. For the week, Euro, Aussie and Kiwi remain the strongest ones. Meanwhile, Canadian Dollar is under pressure as rate hike speculations cooled. Strong risk appetite in the market is pressuring Yen as the second weakest. Markets have little to response to US President Donald Trump's provocative talk to totally destroy North Korea.

Euro surges to highest level since 2015 against Swiss Franc today as boosted by solid improvement in economic sentiments. But the common currency is overwhelmed by Aussie and Kiwi on strong risk appetite. Meanwhile, Sterling also regained ground after the pull back following BoE Governor Mark Carney's cautious speech yesterday. Dollar is generally softer as markets await FOMC policy decision and press conference tomorrow. In other markets, Gold is gyrating in tight range around 1310 but is vulnerable to another dip to 1300 handle. WTI crude oil is also struggling around 50.