12 October 2023
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FOMC minutes strike softer tone

By Daniel Richards

The minutes from the September FOMC meeting struck a somewhat softer tone than previous editions, and while the messaging was still ‘higher-for-longer’, the risks were judged to have ‘become more two-sided’. The minutes showed that ‘all participants’ agreed that the Fed should ‘proceed carefully’ and that a majority of participants still thought one more rate hike would be appropriate, as shown in the dot plot projection published following the meeting. Officials will have been watching the PPI inflation data released yesterday, which showed that producer prices rose more rapidly than expected in September, with the headline figure at 0.5% m/m, higher than the predicted 0.3% but slower than August’s 0.7%. The acceleration was driven by higher food and energy costs, as gasoline prices were 5.4% higher. Stripping out food and energy, the gain was a more muted 0.3% m/m. All eyes will now be on the CPI print for September due out later today.

Germany’s CPI inflation rate for September was confirmed at 4.5% y/y on the second reading. The ECB’s monthly inflation expectations survey was also released yesterday, with expectations for the next 12 months up slightly from 3.4% to 3.5%, while over the coming three years they rose from 2.4% to 2.5%. ECB officials have maintained a fairly hawkish tone in recent commentary, warning that it is too soon to start contemplating cutting rates, and these figures will have reinforced that view.

Today’s Economic Data and Events

  • 10:00 UK industrial production, % m/m, August. Forecast: -0.1%
  • 16:00 India CPI inflation, % y/y, September. Forecast: 5.4%
  • 16:00 India industrial production, % y/y, August. Forecast: 9.0%
  • 16:30 US CPI inflation, % y/y, September. Forecast: 3.6%
  • 16:30 US initial jobless claims, week to October 7. Forecast: 210,000

Fixed Income

  • US Treasuries closed mixed overnight with the 2yr UST showing some choppy trading and closing moderately lower on the day as yields rose by 1bps to 4.9821%. The 10yr UST was steadily stronger though with yields falling about 9bps to 4.5582%. Minutes from the September FOMC cracked open the door to the risks of overtightening on monetary policy though there still remained support for staying higher for long.
  • Bonds generally had a strong day overnight with European markets gaining while emerging market USD bonds also rallied. Turkey 10yr USD yields tightened 7bps to 8.614% though the CDS widened modestly.


  • Currency markets closed mixed against the dollar with the softer tone from the September FOMC helping to support EURUSD. The single currency rose by 0.1% to 1.062 while GBPUSD added 0.2% to 1.2313. USDJPY moved higher, however, rising by 0.3% to 149.17.
  • Commodity currencies fared worse with AUDUSD down 0.3% at 0.6414 while NZDUSD dropped 0.4% to 0.602. USDCAD was relatively more contained at 1.3593, up less than 0.1%.


  • Risk-on sentiment remained in play in Asia on Wednesday, with the primary indices closing higher. The Shanghai Composite edged up 0.1%, but the Hang Seng enjoyed a 1.3% gain, while the Nikkei added 0.6% and the KOSPI 2.0%.
  • The bullishness waned in European markets, however, with luxury stocks in particular coming under fire. The STOXX 600 managed a 0.2% gain, but the CAC ended down 0.4%.
  • In the US, markets focused on the softer Fed messaging rather than the upside surprise in the PPI figures, and all three major indices closed higher. The Dow Jones, the S&P 500, and the NASDAQ added 0.2%, 0.4% and 0.7% respectively.
  • Locally, the ADX added 0.4% and the DFM closed 0.8% higher.


  • Oil prices fell overnight and have given back all the gains caused by the spike in geopolitical premiums from the conflict in Israel and Palestine. Brent futures fell 2% to USD 85.82/b while WTI sank 2.9% to USD 83.49/b. The EIA revised its supply estimate for US production higher to 13.1.6m b/d from 12.94m b/d previously as firms in the US have responded to higher prices with production increases.
  • Data from the API reported a 12.9m bbl build in US crude inventories along with a gain of 3.6m bbl in gasoline stocks while distillates fell back.

Written By

Daniel Richards Senior Economist

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