FOMC minutes trigger USD rally
by Arnaud Masset
As broadly expected, the minutes of September's FOMC (Federal Open Market Committee) minutes were extremely boring and didn't add much information. Looking at the market's reaction, however, and especially at the USD rally that followed the publication of the minutes, it seems that market participants were expecting some kind of turn of events. Apparently, investors would have liked a dovish surprise and expressed their discontent by selling US treasuries and buying the buck.
The yield on the US 10-year Treasury note printed another multi-year high as it surged 4.7bps to 3.21%, the highest level since May 2011. On the short end of the curve, the yield on the 2-year Treasury note climbed 2bps to 2.895%. In the FX market, the US dollar extended gains against most of its peers. In our opinion, yesterday market's reaction is not justified. Therefore, we expect the USD to retrace its gains.
Japanese exports at 22-month low
by Vincent Mivelaz
The Japanese economy faces strong impediments, starting with the trade war between Washington and Beijing, which eventually affects Tokyo's export industry, but also the impact of typhoon Trami, which caused further disruption of production and distribution channels in the western area and thus caused the shutdown of Osaka International Airport. And an earthquake hit the Northern Island Hokkaido during the same period.
Down -1.20% ($60 billion) from the prior month's 6.60% numbers, Japanese exports are facing a sharp drop in September amid a massive drop in electronics, largely explained by the stall in Osaka Prefecture, which remains a key region for electrical machinery production and export.
Accordingly, the impact of the US-China trade war is felt when looking at Japanese exports numbers. Products destined for China or the US have dropped in volume by 1.70% and 0.20%, respectively. Although this remains the first decline with regard to China since February (due to the Chinese New Year), the decline in steel is facing a sharp drop since H2 (-19.50%), as the introduction of US tariffs on steel and aluminium in March is continues to weigh on the economy.
The recent drop in exports is expected to put further pressure on Prime Minister Shinzo Abe, who is expected to focus on the development of conclusive bilateral trade talks with the Trump administration, since the implementation of tariffs on car exports to the US is at stake. Negotiations are expected to start in mid-January.