US stocks close in on ATHs; USDBRL soars

Summary:

• Indices gain after dipping on the Fed

• USDBRL soars as Brazil cuts rates

• BoJ hints at possible action in October

• Muted market reaction as BoE stands pat

• Nok climbs as Norges Bank pulls the trigger

After the major event for US indices of the Fed rate decision last night, the US session is relatively quiet on the data front. Two releases before the cash open are worth mentioning with the weekly initial jobless claims coming in at 208k (vs 210k expected and a prior reading of 206k that was revised up by 2k.) 

More important than the unemployment indicator is the latest look at manufacturing and the Philly Fed survey provided some good news on this front, with the index for the current month coming in at 12.0 (vs 10.9 exp and 16.8 prior). This is the 3rd consecutive beat on the expected for this metric - and also the 4th in the past 5 months - and could be seen to suggest that US manufacturing is attempting to turn a corner and recover from its slump. US stocks have pushed higher with the dip seen after the FOMC announcement proving a nice buying opportunity. Price is now just around 6 points (0.2%) from its record peak of 3029.

The central bank of Brazil cut interest rates by 50bps to a record low level of 5.5% yesterday leading to a major sell-off in the real today. The decision was taken after the market close yesterday and while expected – it still results in a major pressure on the currency. The main rate was 14.5% as recently as in 2016! Weaker BRL means pressure on coffee prices – the commodity is down again on Thursday by around 1.5% and testing the key support of 98.50.  

Several hours after the Federal Reserve delivered its second rate reduction (within its mid-cycle adjustments), the Bank of Japan decided to hold all its monetary policy settings unchanged. It means that the policy rate is still -0.1%, the central bank still targets the 10Y bond yield to be at around 0% and it promises to continue purchasing assets within its QQE at the same pace. What could draw markets’ attention is a suggestion the BoJ will re-examine of prices and the economy at its October (30) meeting. It is worth noting that the last such a re-examination led to the creation of the current policy framework in conjunction with the yield curve control mechanism. On top of that, the BoJ strengthened its dovish pledged by underlining a need to pay closer attention to the risk of losing momentum toward its 2% inflation target.

The Norwegian krone climbed initially after the central bank decided to hike rates by 25 basis points. Nevertheless, the Norges Bank also suggested that rates to remain at current levels in the coming period. That in practice means the bank may have already reached its ceiling in terms of monetary tightening amid other central banks cutting rates. Later comments that suggested this was a “one and done”move saw the initial strength pare back and at the time of writing the NOK actually trades lower on the day against both the US dollar and the Euro.   

The fifth interest rate decision in less than 18 hours from developed markets has seen the Bank of England leaves its base rate unchanged at 0.75% as was widely expected. Ratesetters were unanimous in their view to keep the interest rate at current levels and the bank appear to have broadly maintained their prior stance, offering little by the way of any dovish signs despite the recent softness in data.