Asia open: A cautious Fed

Markets

Despite a "warmish" PPI print, Wall Street's major indexes closed higher after a choppy session, partly due to the release of minutes from the US Federal Reserve's last meeting. The latest minutes have revealed a sense of caution among policymakers, bolstering investor confidence that interest rates would remain steady.

Suppose they were cautious in September, with the recent Bond market sell-off tightening financial conditions substantially, they will certainly not be any less cautious now. 

In that case, it goes a long way to explaining the Fed's suspiciously synchronized, less hawkish messaging this week. Several prominent FOMC participants, including Vice Chair Jefferson, Governor Waller, and Presidents Logan, Daly, and Kashkari, noted that the recent increase in bond yields could substitute for increases in the federal funds rate. The market has interpreted these comments as a strong signal that the Committee will likely keep the federal funds rate unchanged. 

While the warm headline readings in the Producer Price Index (PPI) released overnight may have been unwelcome, they are unlikely to significantly impact the market, particularly without a follow-through from the Consumer Price Index (CPI) released later today. 

Even then, unless there is an unlikely blowout top in the CPI crore reading, the recent evolution of policymakers' rhetoric and the substantial repricing of rates since the last policy meeting have done much of the FOMC heavy lifting, so there is no need to hike in November, and they are certainly not going to put a lump on coal in investors stockings by hiking in December.

Oil markets

Global trepidations gauges are falling as investors brush aside fears of supply disruption due to conflict in the Middle East. Oil prices fell by around 2 %, retracing most gains triggered by geopolitical tensions.

In addition, The American Petroleum Institute (API) has reported a significant inventory build of 12.940 million barrels in US crude inventories, compared to last week's 4.210-million-barrel draw, which should limit oil market top side ambitions failing a wider sphere of influence getting drawn into the current Middle East tensions.

Exxon has closed the deal with Pioneer Natural Resources and now holds a significant stake in the Permian Basin. The good news for Exxon, and hopefully US consumers, is they don't need to poke around and look for reserves; they just need to pump.

Forex markets

The dollar has recovered some overnight losses amid building credit concerns in Italy and no immediate signs of "major league "stimulus from China. And while the Fed is signalling no hike this year, they do not appear to be in a rush to cut rates anytime soon. For the US dollar to truly sell off, the Fed needs to open the door to the possibility of a rate cut. In the meantime, the current G-10 interest rate differential continues to work in the US dollar's favour.