Waiting on the Minutemen

• FOMC minutes due at 7pm BST

• Dollar strengthening into release, Asian currencies hit again

• Schaeuble emphasises need for another Greek bailout

Finally Wednesday has come, and with it comes some news flow that will hopefully give us more hints as to the thoughts of the FOMC members who will continue to drive markets through the rest of the year.

The minutes of the July FOMC meeting, the last one before September’s, are unlikely to see any members place definitive conditions on how their tapering vote will come down – even the most hawkish members of the committee have been at pains to state that the decision will be one based solely on the data coming from the US economy.

That being said, discussions around the make-up of tapering such as the amount that should be cut, will be viewed as hawkish and should lead to USD strength in the aftermath. Of course, concerns about the sustainability of the improvement in the US jobs market, the low inflation outlook or the continual fears over growth should continue this recent bout of USD weakness.

A recent poll by the Wall Street Journal suggests that 53% of economists surveyed believe that tapering will begin at the September meeting whilst 36% are going for December. The remainder are looking for somewhere within Q1 of next year. One argument for tapering later rather than sooner is that the recent run-up in mortgage rates is already damaging the nascent recovery in the US housing market; higher rates in markets mean higher mortgage rates to borrowers.

The dollar has risen against its Asian crosses overnight, although this was helped by another sell-off in emerging markets currencies. It has also made back most of the losses it suffered against the euro yesterday; a move that seems to be traders betting on an increased chance that tomorrow’s PMI data from the Eurozone will show a continent further moving down the road to recovery.

Comments from German Finance Minister Wolfgang Schaeuble that Greece would not need another aid program initially spiked the euro higher this morning. These were later clarified as they WILL need another aid program, and any semblance of excitement in markets was subsequently killed off. This will still be one of the major issues for the German election in 5 weeks’ time. We will be running a special webinar on the election closer to the time.

Yen has remained strong overnight following news that the Japanese company TEPCO, ultimate owners of the nuclear power station at Fukushima, alongside the Japanese Nuclear Regulation Authority may have to upgrade the severity of a leak at the plant.

Have a great day.

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