• Markets look to Fed
  • Euro taking a contrarian view
  • Sovereign debt differences
  • China warns of economic slowdown

The markets are a bit jumpy this morning as we await to hear the FOMC minutes scheduled for later today.  Analysts will be looking for any indication that a December rate hike is or isn’t happening.  The expectation of a rate hike before the end of the year is now at 88% of economists polled.  The Euro has a very different take on the FOMC minutes today as the currency is trading up against this dollar this morning.  The thought behind this bump up is that the recent run up in the USD strength may stay the hand of the Fed as they will be concerned about the strong dollar and the effect of raising rates.  The spike has faded somewhat as the initial reaction to this thought has cooled a bit.

As the possibility of a rate hike increases it is worth looking at how this has affected bonds, especially in the US and the Eurozone.  With the US looking to tighten policy and the ECB looking to ease policy in December it leads to a divergence of the two economies bond yields with extra yield on two year US Treasury notes at the highest since 2007.  In contrast two year German notes sold for a record low negative 0.38% yield.  If everything happens as expected in December then this could lead to the parity of the two currencies that some analysts have brought back to the conversation recently.

On the other side of the world China is warning that its economy may not grow at quite the pace expected.  President Xi Jinping said that the country’s economy faces “considerable downward pressure”.  This comes on the back of a wide spread crackdown in the Chinese investment community as the government ramps up an anti-corruption campaign.  This potential slow down news has also hit the commodities markets hard as many metals trade at six year lows over the concern and many mining companies face significant pressure.

EURUSD: Euro up a bit this morning on the hope that the FOMC minutes will hint at or cause doubt of December rate hikes in the US.

GBPUSD: The pound is relatively unchanged this morning, trading very slightly down.

AUDUSD: Aussie dollar is down on the concerns of Chinese economic slowdown and commodities weakness.

USDCAD: Canadian dollar weakens as expectations for a December rate hike is the US strengthen.