Daily Report: Sentiments Lifted by China Stimulus, BoE Minutes and FOMC Next

Asian markets rebounded on reports that China has broadened stimulus and the news also took Australian dollar higher. It’s reported that the PBoC is injecting CNY 500b, or USD 81b into the five major state-owned banks. The intention is to boost liquidity to channel through to public housing and private businesses. The massive size of injection is seen as equivalent to 50 bps cuts in the so called reserve ration requirements for the whole banking system. Such expansion of monetary base was also seen as “printing money” and a form of quantitative easing. Economists noted that such a move was the first time in response to recent weak economic data and there could be additional steps ahead including fiscal spending.

Looking ahead, a number of important events are scheduled today. BoE minutes will be a major focus. The central bank held policy unchanged in September meeting, with key rate at 0.50% and asset purchase size at GBP 375b. An important point to note is the vote on rates. In August, two policy makers Weale and McCafferty voted for a rate hike of 25bps. And markets will see if any more members joined this hawk camp. The majority of analysts are expecting BoE to keep rates unchanged into 2015 but this is far from being certain. Also to be released from UK, jobless claim is expected to drop -29.7k in August while unemployment rate would drop to 6.3% in July. Nonetheless, any move in Sterling today could be brief as traders would stay cautious ahead of the Scottish independence referendum. Also to be released from Europe include Swiss ZEW and Eurozone CPI final.

FOMC rate decision is another major focus of the day. The Fed is expected to reduce a further USD 10b in the QE program, leaving a final USD 15b which will be removed at the October meeting. We expect to see the statement modified to signal clearly that the QE would end in October. The biggest question is whether FOMC would change the language in the accompanying statement to reflect that rate hike is nearing. To be specific, Fed noted that rates would stay near zero for a “considerable time” after QE ends. And markets are wondering if Fed would drop “considerable time” and vote pattern for such change or not. Fed will also release updated economic projections. There could be upward revision in GDP forecast and downward revision in unemployment rate. Also to be released include US CPI, current account and NAHB housing market index.

Daily Pivots: (S1) 1.0934; (P) 1.1003; (R1) 1.1040; More

The retreat from 1.1098 temporary lower but outlook in USD/CAD remains unchanged. Intraday bias remains neutral for some more consolidations. But downside should be contained above 1.0933 support and bring rally resumption. Break of 1.1098 will extend recent rally from 1.0620 to 100% projection of 1.0620 to 1.0997 from 1.0810 at 1.1187. Break will bring retest of 1.1278 high. Nonetheless, break of 1.0933 will turn focus to 1.0810 key near term support instead.

In the bigger picture, there is no clear sign that the whole up trend from 0.9633 and 0.9406 is reversing. We’ll stay medium term bullish as long as 1.0608 support holds (61.8% retracement of 1.0181 to 1.1278 at 1.0600). Rise from 0.9406 is viewed as the third leg of the pattern from 0.9056 (2007 low) and is still expected to extend to 61.8% retracement of 1.3063 to 0.9406 at 1.1666 in medium term after completing the correction from 1.1278. However, sustained break of 1.0608 will argue that the medium term trend has reversed and will turn outlook bearish.

GMT
Ccy
Events
Actual
Consensus
Previous
Revised
22:45
NZD
Current Account Balance Q2
-1.07B
-1.04B
1.41B
1.47B
0:30
AUD
Westpac Leading Index M/M Aug
-0.10%

-0.10%

8:30
GBP
BoE Minutes

8:30
GBP
BoE Official Bank Rate Votes

2–0–7
2–0–7

8:30
GBP
BoE Asset Purachse Facility Votes

0–0–9
0–0–9

8:30
GBP
Jobless Claims Change Aug

-29.7K
-33.6K

8:30
GBP
Claimant Count Rate Aug

3.00%

8:30
GBP
ILO Unemployment Rate (3M) Jul

6.30%
6.40%

9:00
CHF
ZEW (Expectations) Sep

2.5

9:00
EUR
Eurozone CPI M/M Aug

-0.70%

9:00
EUR
Eurozone CPI Y/Y Aug F

0.30%
0.30%

9:00
EUR
Eurozone CPI – Core Y/Y Aug F

0.90%
0.90%

12:30
USD
CPI M/M Aug

0.00%
0.10%

12:30
USD
CPI Y/Y Aug

1.90%
2.00%

12:30
USD
CPI Core M/M Aug

0.20%
0.10%

12:30
USD
CPI Core Y/Y Aug

1.90%
1.90%

12:30
USD
Current Account Balance Q2

-$115.0B
-$111.2B

14:00
USD
NAHB Housing Market Index Sep

56
55

14:30
USD
Crude Oil Inventories

-1.0M

18:00
USD
FOMC Rate Decision

0.25%
0.25%

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