US MARKET WRAP – FOMC begins balance sheet runoff; foresees one more hike in 2017

The FOMC confirmed plans to shrink the balance sheet, beginning in October, while keeping interest rates unchanged at 1.00% - 1.25%. These decisions did not come as a surprise with markets then focusing on the Fed’s Summary of Economic Projections. More on the FOMC (11 from 8 in July) forecast another rate hike by the end of 2017, while the downgrades to the Fed’s inflation forecast may not have been as large as some had expected. This sent yields higher across the board with 10y yields up as much as 4bps, and 2y yields rising to 9-year highs. Finally, Dec’17 10y T-notes futures settled at 125.20, down 11+ ticks.

Equity markets initially sold off but managed to bounce as participants in buy the dip. The NASDAQ 100 underperformed, weighed on by Apple, after a Rosenblatt note suggested that the company was struggling with iPhone 8 pre-orders and that they were having with Apple Watch connectivity. The S&P 500 closed up 0.06% at 2508.14, the NASDAQ 100 closed down 0.29% at 5973.60, and the Dow closed up 0.18% at 22410.56.

The USD was stronger across the board following the Fed decision with USD/JPY rising to its highest since mid-July. The NZD also held up pretty well after the latest election poll showed the National Party overtaking Labour ahead of this Saturday’s election. The USD-index was on track for its biggest one day gain in 8 months.

Gold sold off after the Fed, briefly dropping below USD 1300/oz, although bounced and hovered around that level heading towards the close. The DoE crude oil inventory data was broadly in line with expectations and failed to give the market too much direction, although as markets continue to digest Trump’s UN speech and speculate on an end to the Iran nuclear deal, WTI and Brent crude futures pushed higher.

20 Sep 2017 - 21:00- Important- Source: RANsquawk

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