Treasury yields rise on Fed outlook, BOJ holds off from further easing

Friday, October 30, 2015

Treasury yields climbed higher on the US Fed’s hawkish outlook as increasing speculation of a December rates rise saw risk appetite for equities improve. Yields on ten year treasuries hit a four week high yesterday, towards 2.1779% at one point as investors were encouraged by the subtle phrasing changes in this month’s FOMC statements. References to global macro risks were dropped and an explicit nod was given to the possibility of raising benchmark rates “at its next meeting.”

While monetary policy in the US and the UK gears up for an eventual tightening, as expected the Bank of Japan held the annual rise in the monetary base at 80tn yen. However, the central bank pushed back its target period for achieving 2% inflation BOJ governor Kuroda maintained his robust view on the economic cycle on an improving corporate earnings and a tighter labour market.

The yen traded within a wide range against the dollar overnight, weakening towards 121.50 before swinging towards 120.30 towards the European open. Trading remains within the week’s range as investor uncertainty ahead of this week’s FOMC and BOJ meetings promoted a wait and see approach. The yen could continue to consolidate sideways against the dollar over the coming week, but we could see some modest weakness from 121.75 currently on any positive surprises for US Q3 employment data as well as PMI and sentiment readings for October which could prompt further dollar strength.

Base metals prices as well as mining stocks came under renewed pressure yesterday as the Fed’s outlook for a potential December interest rate rise prompted a sell-off across a sector already beset by oversupply and lacklustre demand concerns. Three month LME copper prices traded 1.6% lower yesterday, as selling pressure dominated from the outset as investors also came to terms with the announcement that China’s minimum growth estimate for the next five years was set at 6.53%. Three month aluminium prices headed lower for the fourth straight session yesterday, hovering around a six year low on speculation that borrowing costs may rise in the coming months.   

US 10-yr yields increase on Fed hawkishness

USGG10YR Index US Generic Govt 2015 10 30 08 13 57

JPY strengthens against USD as BOJ refrain from further stimulus

JPY Curncy Japanese Yen Spot 2015 10 30 08 25 29

3-M LME copper prices drift lower on Fed outlook

LMCADS03 Comdty LME COPPER 3 2015 10 30 08 31 20

Events for today

1000

EZ

Oct

CPI

1000

EZ

Sep

Unemployment Change

1230

US

Sep

PCE & Personal Income

1230

US

Q3

Employment

1345

US

Oct

Chicago PMI

1400

US

Oct

University of Michigan Survey

FN: 

Nov  Copper, Gold & Silver (COMEX) 

 

Topics: Copper, US Fed, JPY, BoJ, LME
More from: Kash Kamal