Fed brings an end to QE3 citing strong labour market

Thursday, October 30, 2014

As expected the US Federal Reserve brought to an end its third round of QE after tapering bond buying by a final $15bn this month. The central bank highlighted an improving labour market and downplayed any impact global growth concerns would have on the US economy, generally striking a more upbeat tone than market participants had expected. Policymakers once again outlined their commitment to keep interest rates low for a “considerable time” with consensus expectations for a September 2015 increase rising to 52% from 41% on Tuesday. Both shorter term and longer term treasury yields rose immediately after the announcement as trading volumes increased on the FOMC comments with 10 year government bond yields rallying to 2.357% at one stage. With the Fed stressing the importance of a rapidly improving labour market investors will be keeping a keen eye on initial weekly jobless claims, due out later this afternoon with Q3 employment data to follow tomorrow afternoon.

The dollar index managed to recover early losses yesterday, swinging to a 0.65% gain as investors piled into the greenback. The dollar posted steady gains against a basket of its major peers, rallying above 86.00 at one point before ending the session slightly below at 85.952. Activity early on this morning has seen the dollar index build on yesterday’s close, finding firm support around 86.00 and extending gains towards 86.420 as it converges on a four week high. After consolidating between 85.00 and 86.00 for much of October it seems that the dollar is back in an uptrend and could see gains extend towards the recent high of 86.746 seen earlier this month.  

Front month WTI prices rallied towards $82.90/bbl on Wednesday as confidence in the US economy gained traction. However, a stronger dollar curbed the intraday move which saw futures rally as much as 1.6%, trimming gains to a modest 0.8% as WTI prices closed at $82.20/bbl. With recent US data pointing to better than expected demand and yesterday’s FOMC comments outlining a strong labour market the fundamental imbalance that has seen both benchmarks sink towards multiyear lows could see some improvement in the coming months and throughout 2015. Yesterday’s official crude oil inventory data provided by the EIA saw a 2m barrel build in crude stocks, well below the 3.1m barrel w/w increase anticipated by market participants. Changes in refined stockpiles provided further insight into the demand outlook with both gasoline and distillate inventories surpassing expectations, declining 1.2m barrels and 5.3m barrels respectively against expectations for a weekly decline of 663K and 763K respectively. 

US 10 year treasury yields rise on FOMC statement 

USGG10YR Index US Generic Govt 2014 10 30 07 23 01

Dollar index reverses early losses and rallies higher

DXY Curncy DOLLAR INDEX SPOT 2014 10 30 07 25 38

Events for today

1000

EZ

Oct

Bus Climate & Con Sentiment

1230

US

Q3

GDP & Personal consumption

1230

US

w/e

Jobless Claims

1530

US

w/e

EIA Nat Gas

2330

JP

Sep

CPI

FN:

Nov  Copper, Gold & Silver (COMEX)

Topics: US Fed, WTI, DXY
More from: Kash Kamal