TOKYO, Sept 17 (IFR) 12:10amCDT
Asian Recap
JGB prices have turned firmer on slightly better-than-expected results of today's monthly JPY1.2tn 20-yr JGB
auction. See (More) . The lowest accepted price came in at 99.40, just one notch (0.05) above median market
expectations of 99.35. Dealers have to place their offers with an increment of 0.05 in price in the 20-yr JGB auction.
The tail in price widened from 0.02 last month to 0.05, vs 0.09 for its one year average, while the bid-to-cover ratio
inched up from 3.62x last month to 3.89x, modestly lower than 3.93x for its one year average. Yields on the new 20s
(#150@1.4% due Sept 20, 2034) briefly fell as low as 1.40% immediately after the auction results were published on
dealers' short-covering. The new 20s are now trading around 1.405%-1.41%, vs 1.435% for the average accepted
yield. The BoJ is widely expected to buy the new 20s tomorrow in its massive JGB purchase program. One megabank
appears to have purchased the new 20s in a slightly larger-than-usual amount in the auction, while other megabanks
remained away from the super-long zone, according to JGB traders and money managers. The direct purchase by
domestic banks in the auction seems to be less than JPY180bn (15%) in total.
As of this writing, yields on the current 5-yr JGBs are flat at 0.18%, vs 0.185% earlier, while the 10s are down 1.5bp
at 0.56%, after rising to as high as 0.58%, the highest level since June 24. In the super-long zone, the current 20s are
down 2.5bp at 1.375%, after climbing as high as 1.405%, the highest level since July 23. The 30s are down 2bp at
1.68%, vs 1.71% earlier. Lead Dec JGB futures are up 0.18 at 145.55, after fluctuating in a 145.32-145.56 range. The
Nikkei 225 index is down 9pts at 15,903, with USD/JPY hovering around 107.24, vs 106.93-107.33 yesterday in
Tokyo. JGB players also brace for today's FOMC decision and Thursday's Scottish referendum on its independence.
Masatsugu.Hisatsune@thomsonreuters.com Copyright (c) 2014 Thomson Reuters – IFRMarkets
The Conference Board Leading Economic Index(R) (LEI) for Spain Increases
PR Newswire BRUSSELS, Sept. 17, 2014 3:00amCDT
BRUSSELS, Sept. 17, 2014 /PRNewswire/ -- The Conference Board Leading Economic Index(R) (LEI) for Spain
increased 0.3 percent in July to 107.6 (2004 = 100), following a 0.6 percent increase in June, and a 0.4 percent
increase in May. At the same time, The Conference Board Coincident Economic Index(R) (CEI) for Spain, a
measure of current economic activity, increased 0.1 percent in July to 95.0 (2004 = 100), following no change in
June, and a 0.3 percent increase in May.
The LEI for Spain increased for the fifth consecutive month in July. Although its six-month growth rate remains
positive, it has moderated compared to the previous six months. Meanwhile, the CEI continues to increase gradually
and its six-month growth rate has improved compared to the beginning of this year. Taken together, the recent
behavior of the composite indexes suggests that the current economic recovery should continue through the
remainder of this year.
About The Conference Board Leading Economic Index(R) (LEI) for Spain
The composite economic indexes are the key elements in an analytic system designed to signal peaks and troughs in
the business cycle. The leading and coincident economic indexes are essentially composite averages of several
individual leading or coincident indicators. They are constructed to summarize and reveal common turning point
patterns in economic data in a clearer and more convincing manner than any individual component -- primarily
because they smooth out some of the volatility of individual components.
The six components of The Conference Board Leading Economic Index(R) for Spain include:
Capital Equipment Component of Industrial Production
Contribution to Euro M2
Stock Price Index
Long term Government Bond Yield
Order Books Survey
Job Vacancies
For more information including full press release and technical notes:
http://www.conference-board.org/data/bcicountry.cfm?cid=9 For more information about The Conference Board
global business cycle indicators: http://www.conference-board.org/data/bci.cfm
[Dow Jones] 3:30amCDT
U.K. Unemployment Drops
U.K. unemployment fell at its fastest rate in nearly two decades over the last year, as the economy continues to
recover from the depths of the economic crisis. Unemployment declined by 468,000 over the last 12 months, the
largest annual drop since 1988, according to the Office for National Statistics. Still, lower unemployment isn't
feeding through into higher wages: average U.K. pay increases have been at a record low of 0.7% for the last three
months. (matthew.cowley@wsj.com) Contact us in London. +44-20-7842-9464 markettalk@wsj.com (END) Dow
Jones Newswires
0840 GMT [Dow Jones] 3:40amCDT
Scottish Unemployment
The unemployment rate in Scotland stood at 6.0% in the three months through the end of July, the lowest rate among
the four countries that make up the U.K., according to the Office for National Statistics. The rate in England was
6.2% -- in line with the national average -- while in Northern Ireland it was 6.6%. The unemployment rate is highest
in Wales, at 6.7%, according to the ONS. (nicholas.winning@wsj.com) Contact us in London. +44-20-7842-9464
markettalk@wsj.com (END) Dow Jones Newswires
0844 GMT [Dow Jones] 3:44amCDT
BOE Speak
The Bank of England's rate-setting body is still 7 to 2 in favor of maintaining policy interest rates at a record-low
0.5%, minutes of the September Monetary Policy Committee meeting showed Tuesday. Most MPC members justified
the decision because of "insufficient evidence of prospective inflationary pressures," the minutes said, as unit labor
costs grew below what the BOE projects is needed to achieve its medium-term inflation target.After breaking
consensus last month for the first time since BOE Governor Mark Carney took office, members Ian McCafferty and
Martin Weale voted again to raise the benchmark rate to 0.75%. Their view is that wage growth might pick up
sharply as slack in the economy is quickly absorbed, driving up inflation. jon.sindreu@wsj.com Contact us in
London. +44-20-7842-9464 markettalk@wsj.com (END) Dow Jones Newswires
By Nicholas Winning and Matthew Cowley 3:50amCDT
U.K. Unemployment & Wages Details
LONDON--The U.K. unemployment rate fell more than expected to the lowest level for almost six years in the three
months to July, but wage growth remained at record low levels in a sign that many Britons' continue suffer from
falling pay in real terms. The jobless rate for the May to July period was 6.2%, down from 6.4% in the three months
to June and the lowest rate since August 2008, the Office for National Statistics said Wednesday. There were 146,000
fewer unemployed people than in the February-to-April period and 468,000 fewer than in the three months to July
last year, marking the largest annual drop since 1988, it said. The narrower but more up-to-date measure of the
number of people receiving the main state jobless support payment--called Jobseeker's Allowance--fell 37,200 in
August, following a revised 37,400 drop in July, the ONS said.
Economists were expecting the headline unemployment rate to drop to 6.3% and the claimant count to fall 32,000,
according to a Wall Street Journal survey last week.
However, the figures also showed that earnings excluding bonuses in the three months to July were 0.7% higher than
over the same period last year, equaling the record low rate of growth seen over the previous two months, the ONS
said. That is less than half the latest inflation rate released on Tuesday, which showed consumer prices were 1.5%
higher on the year. The unemployment rate has less significance to the Bank of England's policy decisions since
Gov. Mark Carney said in February that the central bank would be taking a broader range of indicators into account
when considering interest rates. However, the measure remains an important number for politicians as the parties
look to woo voters ahead of next May's general election. Prime Minister David Cameron's Conservative party and
coalition partner the Liberal Democrats have argued that the strengthening labor market shows the government's
economic policies, with its focus on austerity to cut the country's budget deficit, have paid dividends.
In contrast, the opposition Labour party has maintained that the austerity drive has led to a slump in Britons' living
standards and has pointed to the weak earnings growth as proof of what the center-left party has dubbed the "cost of
living crisis." Recent polls of voter intentions show Labour still holds a narrow lead over the Conservatives.
Write to Nicholas Winning at nick.winning@wsj.com and Matthew Cowley at matthew.cowley@wsj.com (END)
Dow Jones Newswires
0852 GMT [Dow Jones] 3:52amCDT
China Inject Funds? No!
China's finance ministry auctioned 10-year government bond at a lower-than-expected yield after the central bank
moved to inject 500 billion yuan into five major banks. Twenty-eight billion yuan of the 10-year government bond
was offered at 4.13%, lower than the 4.27% the market expected. Traders say long-term yields fall the most after the
easing measure from PBOC, with the 10-year government bond yield at around 4.16% vs 4.24% in the secondary
market. The central bank is offering the 500 billion yuan as a three-month, low-interest-rate loan to the banks.
(wynne.wang@dowjones.com) Editor: KLH (END) Dow Jones Newswires
LONDON, Sept 17 (IFR) 4:00amCDT
Eurozone Expectations
With ECB policy easing still in the pipeline the data seems less relevant, but when it comes to expectations
management every basis point counts. The final HICP reading for the eurozone has come in at 0.4% which is higher
than its flash estimate of 0.3% and matches the 0.4% seen in July. The recent weakness of the EUR should help to
stall the downside on eurozone inflation but with ECB policy already loose the market will find it difficult to see
much of a reaction. Divyang.Shah@thomsonreuters.com/mc Copyright (c) 2014 Thomson Reuters – IFRMarkets
LONDON, Sept 17 (IFR) 4:33amCDT
German 2-year Schatz = Negative Yield
EUR3.341 bn Schatz 0.0% 9/16 allotted at -0.07%, b/c 2.3, BBK 16.5% (prev 0.0%, b/c 2.0, BBK 19.2%)
Despite the negative yield on offer today’s Schatz tap went smoothly. Total bids were at EUR7.579bn, so easily
enough to cover the total size of EUR4.0bn before BBK retention of EUR0.659bn or 16.5%.
Pricing was also solid with the auction clearing a cent above the mid price at close of bidding when Dec Schatz were
marked at 110.965 (session range of 110.95/97). Link to prior results table http://link.reuters.com/pus72w
david.corbell@thomsonreuters.com/mc Copyright (c) 2014 Thomson Reuters – IFRMarkets
By Todd Buell 4:42amCDT
ECB Speak on ABS
FRANKFURT--A member of the European Central Bank's Executive Board has suggested that a revival of the
market for securitized assets in the eurozone could improve financial institutions' access to collateral. Yves Mersch
said in a speech on Wednesday that there remains "a sufficient buffer of high-quality assets available for market
participants," but added a word of caution. "We need to take into account that the available assets may not be equally
available to all market participants in all regions," he said. "In this respect, securitization could be the appropriate
relief. The recent joint paper by the ECB and the Bank of England on the need for regulatory changes in the treatment
of asset-backed securities is also to be considered here." The two central banks published a joint paper at the end of
May, which outlined options to reinvigorate the sector. The ECB has since said that it would buy ABS and is
expected to announce more details on this at its meeting Oct. 2. Mr. Mersch's speech was prepared for delivery at an
event in Hamburg. --Brian Blackstone contributed to this item. Write to Todd Buell at todd.buell@wsj.com
(END) Dow Jones Newswires
By Emese Bartha 5:25amCDT
About That Record Low Schatz Yield…
FRANKFURT--Investors paid a hefty price tag for the privilege of buying German government debt
Wednesday, in a fresh sign of how the European Central Bank's monetary easing policies are upending the
region's bond markets. The German Finance Agency sold 3.341 billion euros ($4.33 billion) of a September
2016-dated treasury note at a record low average yield of -0.07%, the Bundesbank said. That effectively means
investors have paid to buy the debt for the first time since December 2012. At its previous similar sale in
August, Germany sold debt for a 0% yield.
"Negative auction yields even in the two-to-three-year part of the German curve are a good illustration of the current
depressed interest rate environment," said Jan von Gerich, chief strategist at Nordea. The decline in yields is likely to
continue as the full range of ECB easing measures emerge over time, he added. Bond yields drop when prices rise.
Earlier this week, Denmark, a neighbor of the euro area whose monetary policy broadly tracks that of the ECB, also
sold two-year bonds with a negative yield, for the first time in more than two years.
The European Central Bank cut benchmark interest rates by 0.1 percentage point on Sept. 4, and also announced
plans to buy certain types of non-government bonds. That has boosted all categories of bonds in the region. German
two-year debt has offered yields below zero in the post-issue secondary market for more than a month.
"It seems highly unlikely, given the growth and inflation outlook, that the ECB will unwind these accommodative
measures any time soon," said Morgan Stanley analyst Anton Heese, adding that the ECB's measures have "firmly"
pinned down bond yields. The series on offer is an existing issue that was reopened.
The following are details of the auction, with amounts in Euros. Figures in brackets are from the previous auction
held on Aug. 20.
Issue two-year Schatz
Maturity Sept. 16, 2016
Coupon 0.00%
Amount on offer 4 bln
Bids received 7.579 bln
Bids accepted 3.341 bln
Bid-to-cover ratio 2.3 (2.0)
Average yield -0.07% (0.00%)
Average price 100.136 (100.009)
Minimum price 100.135 (100.005)
Settlement date Sept. 19, 2014
The Bundesbank said 60% of bids at the lowest price were accepted and it also satisfied all the non-competitive bids
at the weighted average price. The amount retained for market-tending purposes was about EUR659 million,
bringing the total issue size to EUR4 billion, as previously announced. The German Finance Agency manages the
country's federal debt, while the Deutsche Bundesbank is responsible for conducting the debt auctions.
Write to Emese Bartha at emese.bartha@wsj.com (END) Dow Jones Newswires
CHICAGO, Sept 17 (IFR) 6:00amCDT
MBA Weekly Mortgage Reports a Rebound
“Application volume rebounded coming out of the Labor Day holiday, even as rates increased to their highest level in
the last few months,” said Mike Fratantoni, MBA’s Chief Economist. In fact, mortgage application activity was
expected higher despite an increase in mortgage rates due to noise around the holiday-shortened week, which the
MBA used only a 1/2-day adjustment for. Overall, mortgage applications rose 7.9% in the week ending September
12. Regarding refinancing activity, the Mortgage Bankers Association reported a 10.3% jump to 1395.5; however,
from two weeks ago refinancings are down 1.4% which shows some impact on activity due to higher rates. As a
percent of total applications, refinancing share moved back to 57%, its highest since February, from 55%.
The average contract interest rate for 30-year fixed rate conforming loans increased nine basis points to 4.36%, its
highest level since June, while FHA rates rose six basis points to 4.03%. In response, government refinancings
recovered by 14.1% last week to 1382.4, but is up just 5.3% over the past two weeks. The Conventional Refi Index,
meanwhile, increased 9.6% to 1398.4 but is down 2.6% from the end of August. The Purchase Index rose 4.8% to
169.3 in the second week of September, and is up 2.1% from the August 29 week. From a year ago, however,
purchase activity remains down 10%.
Unless the no point mortgage rate drops below 4%, refinancing activity is not going to pick up notably, while easier
credit conditions are needed to stimulate purchases. Regarding purchases, mortgage analysts at Bank of America
Merrill Lynch continue to believe that the homeownership rate will trend lower due to a declining labor participation
rate. Currently, the homeownership rate is just under 65% and they think it could ultimately drop closer to 62%.
This level would put the Purchase Index in the 125 to 140 area. As home purchases comprise about 60% of gross
supply, this also suggests lower gross supply in coming years -- particularly in conventionals.
Sallyann.Runyan@thomsonreuters.com Copyright (c) 2014 Thomson Reuters – IFRMarkets
WASHINGTON 7:30amCDT
CPI Down
Consumer prices fell in August, a reading that could support Federal Reserve policymakers seeking to move slowly
in raising ultra-low interest rates. The consumer-price index, which measures how much Americans pay for
everything from rent to refrigerators, fell a seasonally adjusted 0.2% in August from a month earlier, the Labor
Department said Wednesday. It was the first monthly decline for the inflation measure since April 2013.
The index was unchanged after excluding volatile food and energy categories, the first time that measure didn't record
an increase since October 2010. Economists surveyed by The Wall Street Journal had forecast overall prices would
be unchanged but costs excluding food and energy would rise 0.2%.
Inflation had picked up somewhat during the spring, but the latest data shows that pressure easing. From a year
earlier, the index was up 1.7% in August, a slowdown from the 2.0% annual rise recorded in July. Fed officials are
closely monitoring inflation measures as they discuss next steps for monetary policy during a two-day meeting set to
conclude later Wednesday. With the Fed on track to end its bond-buying program next month, investors are now
closely monitoring when the central bank might move to raise benchmark interest rates from near zero, where they've
stood since 2008.
Tame inflation suggests the Fed has flexibility to keep rates low without risk of the economy overheating. The Fed
has a 2% annual inflation target but prefers to use a different reading, the Commerce Department's price index for
personal consumption. In July, that index was up 1.6% from a year earlier.
The Fed's preferred gauge of inflation has undershot the central bank's target for more than two years. Weak inflation
is a symptom of a sluggish five-year recovery that has produced little upward pressure on wages. Small income gains
and still historically high unemployment have also limited consumer demand. Job creation has accelerated this year,
but wage gains remain largely in check. Wednesday's report showed energy prices fell 2.6% in August. The fall was
led by a 4.1% drop in gasoline prices. Food prices rose 0.2% during the month. Meat prices, led by beef, contributed
to the gain last month. But prices for fruits and vegetables fell. Shelter costs, which advanced 0.2% for the month,
are up 2.9% over the past year. Housing costs account for almost a third of consumer expenditures.
Medical care prices were unchanged in August, the first time this year that measure didn't increase. And airfares fell
sharply for the second straight month, falling in 4.7% in August after a nearly 6% drop the prior month.
Separately, the Labor Department reported that Americans' inflation-adjusted weekly earnings rose 0.4% in August.
The gain reflects both falling prices--which improves purchasing power--and a small increase in pay. But from a year
earlier, real weekly earnings are also up only 0.4%, reflecting lackluster wage growth.
The Labor Department's report on consumer prices can be found at: http://www.bls.gov/news.release/pdf/cpi.pdf
Correction:This item was corrected because it misstated the day of the week in the 10th paragraph. The report was
issued on Wednesday, not Tuesday. (END) Dow Jones Newswires
LONDON, Sept 17 (IFR) 8:27amCDT
Riksbank in a Pickle
The policy outlook for the Riksbank is asymmetric with the bank likely to deliver further policy easing should
Swedish inflation fail to rise. With the repo rate at 0.25%, the central bank is likely to sharply flatten the expected
rate path by delaying the first rate hike as well as reducing the speed/magnitude of subsequent tightening. The
minutes of the Sept meeting suggest the board is more sensitive to the inflation outlook and that the aggressive 50 bps
cut in July was due to the bank attaching a greater weight to model based inflation forecasts as opposed to judgementbased assessments. Despite a positive surprise on inflation between the July and Sept meetings the Riksbank remains
sensitive to inflation falling short of the 2% target. If inflation fails to move higher, the Riksbank will take further
steps. Further action will also be considered if foreign interest rates do not rise as forecast or the SEK appreciates
more than expected. Too optimistic a view on the inflation outlook prior to July meant the Riksbank kept policy too
tight for too long and this can be seen in the divergence in core inflation between Sweden and Norway (for a chart see
http://link.reuters.com/qyw32w). What is interesting is that despite diverging inflation in Sweden and Norway, the
rate path provided by the Riksbank is more aggressive than the Norges Banks both in terms of speed and magnitude
of expected tightening. For a chart of Riksbank and Norges Bank rate paths see http://link.reuters.com/jut82w. It
seems likely to us that the Riksbank will have to change the rate path to show a less aggressive tightening cycle. SEK
shorts favoured especially against NOK but receiving 1y2y SEK could be more appealing to play for a flatter rate
profile. Divyang.Shah@thomsonreuters.com/pd Copyright (c) 2014 Thomson Reuters – IFRMarkets
BOSTON, Sept 17 (IFR) 9:00amCDT
NAHB Confidence Rises
The NAHB Housing Market Index, assessing builders' confidence in new home sales, rose four points to 59 in its
September reading. That beats the consensus call of 56, and brings the index to its highest since November 2005. The
four-point jump is its largest since July 2013's five-point increase. The current sales index rose five points to 63,
though that's only its best since December's 63, and the six month ahead expected sales index rose two points to 67,
its best since August 2013. The traffic index, however, rose five to 47, its best since October 2005.
Though the Census's measure of new home sales has been mediocre in recent months, with elevated inventory levels,
higher builder confidence suggests more new housing construction activity in months to come. That may provide a
slight boost to the housing sector in Q3 GDP, and more in Q4. In Q2 it contributed +0.22 points to the headline, and
the Fed has been saying that "recovery in the housing sector remains slow."
More to come.... Theodore.Littleton@thomsonreuters.com Copyright (c) 2014 Thomson Reuters – IFRMarkets
The Conference Board Leading Economic Index(R) for Brazil, Together with Fundacao Getulio Vargas,
Decreased in August PR Newswire RIO DE JANEIRO, Sept. 17, 2014 9:00amCDT
RIO DE JANEIRO, Sept. 17, 2014 /PRNewswire/ -- The Conference Board Leading Economic Index(R) for Brazil,
together with Fundacao Getulio Vargas (TCB/FGV Brazil LEI), decreased 0.4 percent in August. The index now
stands at 121.5 (2004 = 100), following a 2.0 percent increase in July and a 1.6 percent decline in June. Three of the
eight components contributed positively to the index in August. "The fall in economic activity during the first two
quarters of the year is consistent with the prolonged declines in the TCB/FGV LEI and TCB/FGV CEI since 2013,"
said Paulo Picchetti, economist at FGV/IBRE. "Expectations remain mixed ahead of the upcoming elections, and it is
still too soon to say if economic growth will improve in the second half of 2014, but the LEI suggests the economy
will likely continue to struggle in the near term." "The TCB/FGV Brazil LEI has declined in seven of the first eight
months of this year and its six-month change remains in negative territory with widespread weaknesses among the
leading indicators," said Ataman Ozyildirim, economist at The Conference Board. "The more pessimistic outlook of
consumers and expectations in services offset improved expectations for manufacturing and stock markets in
August."
The Conference Board Coincident Economic Index(R) for Brazil, together with Fundacao Getulio Vargas (TCB/FGV
Brazil CEI), which measures current economic activity, increased 0.1 percent in August at 127.0 (2004 = 100),
following a 0.2 percent increase in July and a 0.6 percent decline in June. Three of the six components contributed
positively to the index in August. TCB/FGV Brazil LEI aggregates eight economic indicators that measure economic
activity in Brazil. Each of the LEI components has proven accurate on its own. Aggregating individual indicators into
a composite index filters out so-called "noise" to show underlying trends more clearly.
About The Conference Board Leading Economic Index(R) for Brazil, together with Fundacao Getulio Vargas
TCB/FGV Brazil LEI was launched in July 2013. Plotted back to 1996, this index has successfully signaled turning
points in the economic cycles of Brazil. The Conference Board also produces LEIs for Australia, China, the Euro
Area, France, Germany, Japan, Korea, Mexico, Spain, the United Kingdom, and the United States.
The eight components of TCB/FGV Brazil LEI include:
Swap Rate, 1 year (Source: Central Bank of Brazil)
Stock Price Bovespa Index (Source: BOVESPA - Bolsa de Valores de Sao Paulo/ Sao Paulo Stock Exchange)
Manufacturing Survey: Expectations Index (Source: FGV/IBRE)
Services Sector Survey: Expectations Index (Source: FGV/IBRE)
Consumer Expectations Survey: Expectations Index (Source: FGV/IBRE)
Physical Production of Durables Consumer Goods Index (Source: IBGE - Instituto Brasilieiro de Geografia e
Estatistica/ Brazilian Institute of Geography and Statistics)
Terms of Trade Index (Source: FUNCEX - Fundacao Centro de Estudos do Comercio Exterior/The Foundation
Center for the Study of Foreign Trade)
Exports Volume Index (Source: FUNCEX - Fundacao Centro de Estudos do Comercio Exterior/The Foundation
Center for the Study of Foreign Trade)
https://www.conference-board.org/data/bcicountry.cfm?cid=12
To view The Conference Board calendar of 2014 indicator releases: http://www.conference-board.org/data/
BOSTON, Sept 17 (IFR) 9:20amCDT
NAHB Index and 10-Year Yields
* NAHB was the strongest since 2005 rising to 59 from 55 and vs 56 expected - the only concern voiced in the
sentiment index was about the lack of first time home buyers which has plummeted to levels not seen since the 1970s.
* The stronger than expected housing report helped sellers remain in control taking 10s to 2.583% from the morning
low of 2.556%, but there has been a recent short covering bid after the selling as traders trim positions in front of the
Fed verdict.
* Cash trading remains light with a slow start overnight as volume displayed only a 75% tally vs recent norms - have
not fared much better but have seen the bulk of the action. Note that in PIMCO's August position filings Gross
liquidated most of their $48 bln in cash treasuries to replace them with futures using the extra cash to pile into higher
yielding corporates and EM debt. Gross said “What it basically means is that Pimco can turn a Treasury yield into a
corporate yield with a Treasury quality and Treasury liquidity,” - though we are not sure that applies to the Roach
Motel nature of especially EM debt and now even corporates. Gross also like the anonomity of futures so he can hide
his big moves from dealers and other leveraged traders. Copyright (c) 2014 Thomson Reuters – IFRMarkets
11:02 EDT 10:02amCDT
The Cost of Socialism
Moody's says the US is still as creditworthy as any government can get, but that social spending the coming years is
one factor it's keeping an eye on. The ratings firm has the US credit rating at AAA with a stable outlook, with it
noting that despite a large debt load, America's diverse economy and reserve-currency role allow the federal
government to borrow more than other countries. However, "toward the end of the decade, the costs of social
programs become a greater credit concern. Adjustments to major social programs such as Social Security and
healthcare spending may eventually become necessary to avoid pressure on US creditworthiness."
(cynthia.lin@wsj.com; @cynthialin_dj) (END) Dow Jones Newswires
11:16 EDT 10:16amCDT
Pimco Talks Its Book
Pimco is among the money managers betting on more QE from the ECB. "We expect the ECB to continue to ease
monetary policy in the eurozone over the cyclical horizon via some form of quantitative easing during 2015, which
will involve the large-scale purchase of sovereign bonds," says fund manager Saumil Parikh in the firm's latest global
growth outlook. He believes the stimulus the ECB announced in recent months are not "sufficient in arresting the
liquidity trap conditions responsible for declining inflation expectations." The eurozone economy should grow by
about 1% in the next 12 months, while a stronger US economy will assist the eurozone recovery via better exports
and a stronger dollar against the euro. (min.zeng@wsj.com; @minzengwsj) (END) Dow Jones Newswires
By Tommy Stubbington And Chiara Albanese 10:49amCDT
Making Book On Scottish Votes
LONDON--It's crunch time for sterling. Investors are bracing for sharp swings in the currency whatever the outcome
of Scotland's vote on independence from the rest of the U.K. Thursday. The pound has been pinched by the resurgent
U.S. dollar for weeks, but it slumped by an additional 2.4% after a sudden surge in support for independence earlier
this month forced the issue to the top of the market's agenda. An opinion poll on Sept. 6 showed the 'Yes' campaign
in the lead for the first time. Those wishing to remain part of the U.K. soothed the pound by later reasserting a narrow
advantage in the polls, but a distinct unease prevails.
Most investors agree that a further slide is on the way if Scottish voters defy the polling numbers and separate from
the U.K., while the pound is due for a bounce if the 'No' vote wins. Either way, the moves in the currency could be
sharp, lining up a potentially volatile trading session as the results emerge in Asian trading hours Friday.
"We estimate that the referendum uncertainty has hurt the pound by around 2%. A No vote should see this unwind,"
said Daniel Loughney, a fixed income portfolio manager at Alliance Bernstein which has $477 billion of assets.
Some think the snapback would be even sharper.
"The pound is a fundamentally strong currency that has been derailed by an extraordinary situation," said Matt Toms,
who manages $125 billion as head of U.S. Public Fixed Income at Voya Investment Management. "You have clear
upside in the pound." The currency could gain "a few percent very quickly" if Scotland remains in the U.K., Mr.
Toms said.
Selling the pound has been investors' favorite way to place bets around the referendum results. U.K. government
bonds have held steady, drawn in two directions by nerves that push them higher, and concerns over which parts of
the U.K. will be responsible for paying them back over the long term. Stocks have proven jumpy but with
inconclusive direction, with some bank stocks, especially for banks based in Scotland, initially hit by fears over a
breakup but later rising when lenders stressed they had contingency plans in place.
The currency, meanwhile, is potentially hit on several fronts. Firstly, it is unclear whether Scotland will use the pound
if it breaks away. Supporters of independence say it would; opponents say that that would be impossible without
ceding some decision-making to the government in London. Bank of England governor Mark Carney has also alluded
to a need to follow a unified economic policy in order to support a common currency. Furthermore, economists warn
that if Scotland splits, that could hit U.K. economic growth and push back the timing of likely interest-rate rises,
pulling the pound lower.
Some investors are concerned that even if voters decide to keep the U.K. together, the tough battle for votes could
leave a long-lasting shadow over the currency.
"Unless the result is a very firm 'No', there's a good chance that this issue will raise its head again," said Paul
Lambert, London-based head of currency at Insight Investment, which oversees $472 billion of assets. "In some
senses, Pandora has been allowed out of her box and it is going to be very difficult to get her back in," he said, adding
that he expects a sterling rally of around 1.5% in the event of a 'No' vote.
Others are happy to buy now. Axel Merk, head of Merk Investments LLC in Palo Alto, Calif., which has $400
million under management, said he has been buying the pound and will be "buying on the way down" even if
Scotland votes for independence, as it will likely recover over the long term.
"There is no central bank in Scotland, nothing to support a banking system, and until these institutions are built, all of
that money will be sucked into the U.K. economy anyway," Mr. Merk said.
For many investors, the all-or-nothing nature of the referendum has left them reluctant to make any bets heading into
the vote.
"It is such a binary event we don't want to take a strong view either way," said Thomas Kressin, currencies portfolio
manager at Pacific Investment Management Co., which has $2 trillion in assets under management.
Mr. Kressin, like many others, is wary of the "pretty significant" downside for the currency in the event of a surprise
'Yes' vote. He thinks sterling could fall to the "low $1.50s" against the dollar from around $1.62 currently.
"We need to be aware that the U.K. still has one of the largest current account deficits in Europe, so it needs capital
inflows. An extended period of uncertainty would hold those back. Sterling is pretty vulnerable to that external
environment," he said.
Sterling is a major currency that is traded all over the world. That means some major currencies-dealing banks say
they see no need to make sure extra staff are working overnight in London to cope with knee-jerk volatility when the
results are announced in the early hours of the morning in local time.
"Of course traders may be very busy---even flat out on Thursday and Friday, but we're not putting any exceptional
measures in place," said a spokesman for Deutsche Bank.
Some staff at U.K. bank HSBC, however, are planning an all-night shift. "Coffee...will be in greater demand," said
Daragh Maher, a currencies analyst at the bank in London. Ira Iosebashvili in New York and Josie Cox in London
contributed to this article. Write to Tommy Stubbington at tommy.stubbington@wsj.com and Chiara Albanese at
chiara.albanese@wsj.com (END) Dow Jones Newswires
By Don Curren 11:18amCDT
CAD Bonds
TORONTO--Canadian bonds are higher Wednesday, gaining ground along with U.S. Treasurys after consumer price
inflation data in the latter country fell short of expectations. Canada's two-year bond yield was 1.144% Wednesday,
from 1.149% late Tuesday, according to electronic trading platform CanDeal. The 10-year bond yielded 2.235%,
from 2.243%. There were no significant data releases in Canada Wednesday, leaving the market particularly
susceptible to external influences.
Accordingly, Canadian bonds followed in sympathy with the U.S. government bond market after news that in August
the consumer price index in the U.S. unexpectedly posted a 0.2% decline. The CPI excluding food and energy was
unchanged last month versus a 0.2% gain forecast by economists.
"The CPI was considerably weaker than expected, especially the core," said Sal Guatieri, senior economist at BMO
Capital Markets.
Trading in North American bond markets remains cautious, though, ahead of the U.S. Federal Reserve's policy
statement at 2 p.m. EDT.
Market participants are keen to see if the U.S. central bank will drop the reference to its policy interest rate remaining
at its current low level for a "considerable period," a shift which may indicate interest rate increases could come
earlier than previously expected.
"All the language is going to be on whether they change the language of the forward guidance," said Mr. Guatieri.
The Canadian market underperformed U.S. Treasurys in some maturities Tuesday after stronger-than-expected
Canadian manufacturing data for July. But longer-term, the Canadian market is likely to resume its earlier pattern of
outpacing U.S. bonds as the economic recovery in that country accelerates more rapidly than Canada's, Mr. Guatieri
said. "In a relative sense, the Canadian market will outperform," he said. Write to Don Curren at
don.curren@wsj.com (END) Dow Jones Newswires
12:38pmCDT Clockwise: AUD/USD, GBP/USD, USD/CHF, EUR/USD, USD/CAD, USD/JPY, EUR/CHF
1:00pm “Considerable Time” remains in statement.
Clockwise: AUD/USD, GBP/USD, USD/CHF, EUR/USD, USD/CAD, USD/JPY, EUR/CHF
By Michael S. Derby 1:00pmCDT
Fed’s Statement
WASHINGTON--Most Federal Reserve officials continue to expect the central bank to first increase interest rates
some time next year, according to official projections released Wednesday.
In the forecast, 14 of 17 officials said they continue to believe the Fed's first increase in near zero short-term rates
will occur in 2015. One official believes the Fed should boost rates this year, while two think the central bank can
hold off until 2016. The September forecasts represent a modest shift from June's projections, when one hoped the
Fed would lift rates this year, while 12 saw 2015 as the most likely point of lift off.
In the forecasts, 11 of the officials see the central bank's overnight target rate at 1.375% or lower by the end of 2015.
The forecasts released by the Fed Wednesday had officials providing interest rate forecasts in new way, indicating a
new strategy in moving interest rates. The projections represent the target level or midrange of the target level
expected by policymakers.
The Fed's forecasts were released in the wake of its latest gathering of the monetary-policy setting Federal Open
Market Committee. Central bankers announced Wednesday a continued wind down of their bond buying stimulus
program. Fed officials also continued to say they expect their ultra-easy monetary policy stance to be maintained for a
"considerable time" into the future.
The U.S. central bank's so-called "dots plots" describing its monetary policy outlook have evolved into a challenging
part of the Fed's forecasting activities. The dots denote the monetary policy views of all of Fed governors and
regional bank presidents, and as such, many observers look to shifts in the distributions of these individual forecasts
as an indication of a potential change in direction for the central bank.
Fed members have a diverse array of views about the future. That said, central bank monetary policy making has for
some time been firmly in the hands of those who have supported aggressively easy money policies to help the
economy get back on track. At her June press conference held at the FOMC meeting, Fed Chairwoman Janet Yellen
said predicting the future path of monetary policy is inherently difficult. She said then that each official contributing a
forecast had a "considerable band of uncertainty around their own individual forecast."
In their updated econonomic forecasts, officials trimmed their growth and unemployment outlook, and predicted
slightly less inflation.
The Fed's so-called central tendency for growth this year moved to a projection of 2% to 2.2% versus a rise of 2.1%
to 2.3% in June's numbers. For 2015, officials see growth coming in between 2.6% and 3%, down from June's
forecast, while 2016 growth is seen at 2.6% to 2.9%. Longer run, Fed officials see the U.S. gross domestic product
standing at 2% to 2.3%.
Officials expect that unemployment for this year will be between 5.9% and 6%, versus the 6% to 6.1% levels seen in
June. Next year, unemployment is seen coming in between 5.4% and 5.6%, with the jobless rate ebbing to 5.1% to
5.4% in 2016. The Fed's longer run projection for the unemployment rate continues to rest at 5.2% to 5.5%. The
current jobless rate is 6.1%
Fed officials continue to see little threat on the inflation front. They reckon their preferred price gauge, the personal
consumption expenditures price index, will come in between 1.5% and 1.7% this year. In 2015, price pressures are
seen ticking up to a 1.5% to 1.9% gain. The Fed's official target is 2%.
For some time now, the Fed has found itself in the position of underestimating the level of improvement in the
unemployment rate, while overestimating the how much growth the economy would see.
In its last major forecast revision in June, the Fed was forced to take account of the hit the economy had taken from
adverse weather over the start of the year and revise lower its growth estimate for the current year. Officials have
been confident that first quarter weakness would prove transient, and so far, the data seen over the course of the
second quarter and beyond have supported that contention. Write to Michael S. Derby at Michael.derby@wsj.com
(END) Dow Jones Newswires
1:01pmCDT Clockwise: AUD/USD, GBP/USD, USD/CHF, EUR/USD, USD/CAD, USD/JPY, EUR/CHF
By Jon Hilsenrath 1:01pmCDT
Release of Plans as per The Disciple
WASHINGTON-The Federal Reserve said it would end the bond buying program known as quantitative easing in
October, but retained its guidance that short-term interest rates will remain near zero for a "considerable time" after
that program ends. Under the plan, the Fed will purchase $15 billion worth of mortgage and Treasury bonds in
October and then stop the purchases. Additionally, the Fed put out new details on how it would manage the
mechanics of interest rate increases once the time arrives. The "exit strategy" introduces new instruments that will
help the Fed move short-term rates once officials decide the economy can manage tighter credit.
By laying out its exit strategy and announcing its plan to end its bond purchase program, the Fed effectively took two
tentative new steps toward winding down the historic easy money policies that have defined its response to the 2008
financial crisis and recessions. But because the economy isn't clearly on a robust path, officials avoided the dramatic
step of signaling when rates would start to go up.
"Economic activity expanded at a moderate pace," since the Fed's July policy meeting, the Fed said in its official
policy statement. "On balance labor market conditions improved somewhat further, however the unemployment rate
is little changed and a range of labor market indicators suggests that there remains significiant underutilization of
labor resources."
As the Fed moves toward rising rates, its expectations about the economy's longer run prospects are also becoming a
bit more dour. In updated growth forecasts, the Fed said it expected the economy to grow at a pace between 2% and
2.2% in 2014, between 2.6% and 3% in 2015, between 2.6% and 2.9% in 2016 and between 2.3% and 2.5% in 2017.
The projections through 2016 were all marked down from June, the last time the Fed made rate projections, and the
growth projection for 2017 showed officials have become less convinced the economy can sustain the kind of 3%
growth rates that were familiar to the U.S. economy in the past.
The forecasts underscore the Fed's caution about moving quickly toward raising rates.
Some market participants expected the Fed to ditch the "considerable time" assurance altogether, which could have
been seen as a sign of a sharper shift by the Fed toward raising rates. While officials have been discussing that idea,
they avoided that step.
The Fed anticipates "it will be appropriate to to maintain the current target range for the federal funds rate for a
considerable time after the asset purchase program ends," the Fed said. It added, as it has before, that this was
especially the case as long as inflation runs below the Fed's 2% inflation goal. A Labor Department report released
earlier Wednesday showed the consumer price index declined in August.
The Fed's projections include some complicated new estimates for where officials expect the target interest rate to be
in the years ahead. In the past Fed officials have projected point estimates for the fed funds rate, for instance a rate of
1.25% in late 2015 or 2.5% in late 2016. Revised estimates are placed in a quarter percentage point range. The new
projections show that officials expect the fed funds rate to be between 1.25% and 1.50% in late 2015 and between
2.75% and 3.0% in late 2016 (END) Dow Jones Newswires
BOSTON, Sept 17 (IFR) 1:02pmCDT
Verbatim
Below is the verbatim text of today's FOMC policy statement.
Information received since the Federal Open Market Committee met in July suggests that economic activity is
expanding at a moderate pace. On balance, labor market conditions improved somewhat further; however, the
unemployment rate is little changed and a range of labor market indicators suggests that there remains significant
underutilization of labor resources. Household spending appears to be rising moderately and business fixed
investment is advancing, while the recovery in the housing sector remains slow. Fiscal policy is restraining economic
growth, although the extent of restraint is diminishing. Inflation has been running below the Committee's longer-run
objective. Longer-term inflation expectations have remained stable.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The
Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace,
with labor market indicators and inflation moving toward levels the Committee judges consistent with its dual
mandate. The Committee sees the risks to the outlook for economic activity and the labor market as nearly balanced
and judges that the likelihood of inflation running persistently below 2 percent has diminished somewhat since early
this year.
The Committee currently judges that there is sufficient underlying strength in the broader economy to support
ongoing improvement in labor market conditions. In light of the cumulative progress toward maximum employment
and the improvement in the outlook for labor market conditions since the inception of the current asset purchase
program, the Committee decided to make a further measured reduction in the pace of its asset purchases. Beginning
in October, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $5 billion per
month rather than $10 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of
$10 billion per month rather than $15 billion per month. The Committee is maintaining its existing policy of
reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency
mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee's sizable and
still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates,
support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should
promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with
the Committee's dual mandate.
The Committee will closely monitor incoming information on economic and financial developments in coming
months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other
policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price
stability. If incoming information broadly supports the Committee's expectation of ongoing improvement in labor
market conditions and inflation moving back toward its longer-run objective, the Committee will end its current
program of asset purchases at its next meeting. However, asset purchases are not on a preset course, and the
Committee's decisions about their pace will remain contingent on the Committee's outlook for the labor market and
inflation as well as its assessment of the likely efficacy and costs of such purchases.
To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its
view that a highly accommodative stance of monetary policy remains appropriate. In determining how long to
maintain the current 0 to 1/4 percent target range for the federal funds rate, the Committee will assess progress--both
realized and expected--toward its objectives of maximum employment and 2 percent inflation. This assessment will
take into account a wide range of information, including measures of labor market conditions, indicators of inflation
pressures and inflation expectations, and readings on financial developments. The Committee continues to
anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current
target range for the federal funds rate for a considerable time after the asset purchase program ends,
especially if projected inflation continues to run below the Committee's 2 percent longer-run goal, and
provided that longer-term inflation expectations remain well anchored.
When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent
with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates
that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for
some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the
longer run.
Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael
Brainard; Stanley Fischer; Narayana Kocherlakota; Loretta J. Mester; Jerome H. Powell; and Daniel K. Tarullo.
Voting against the action were Richard W. Fisher and Charles I. Plosser. President Fisher believed that the continued
strengthening of the real economy, improved outlook for labor utilization and for general price stability, and
continued signs of financial market excess, will likely warrant an earlier reduction in monetary accommodation than
is suggested by the Committee's stated forward guidance. President Plosser objected to the guidance indicating that it
likely will be appropriate to maintain the current target range for the federal funds rate for "a considerable time after
the asset purchase program ends," because such language is time dependent and does not reflect the considerable
economic progress that has been made toward the Committee's goals. Copyright (c) 2014 Thomson Reuters –
IFRMarkets
By Michael Aneiro 1:06pmCDT
More Dissection, Considerable Time
The Federal Reserve kept the " considerable time" language in its latest policy committee statement after all, and also
kept the "significant underutilization of labor resources" language. As expected the Fed said it's continuing its
tapering process apace by trimming another $10 billion from its monthly bond purchases, which are on track to end
next month. The Fed saw two hawkish dissents this time around, up from one last time. Philadelphia Fed President
Charles Plosser kept his dissent, which he had initiated last month, objecting specifically to the "considerable time"
language, saying because such language "is time dependent and does not reflect the considerable economic progress
that has been made toward the Committee's goals." He was joined this time around by Dallas Fed President Richard
Fisher, who "believed that the continued strengthening of the real economy, improved outlook for labor utilization
and for general price stability, and continued signs of financial market excess, will likely warrant an earlier reduction
in monetary accommodation than is suggested by the Committee's stated forward guidance." More at Barron's
Income Investing blog, http://blogs.barrons.com/incomeinvesting/ (END) Dow Jones Newswires
1:07pmCDT
Clockwise: AUD/USD, GBP/USD, USD/CHF, EUR/USD, USD/CAD, USD/JPY, EUR/CHF (with insert of 10-sec)
14:26 EDT 1:26pmCDT
“Dot Plot” B.S.
Despite the dovish policy statement, the FOMC's outlook on rates shift up a bit in its so-called dot plot, which maps
out individual officials' forecasts. The median rate projected for the end of 2015 is now 1.375%, up 25 bps from the
last projection released in June. The 2016 dot moves up 37.5 bps to 2.875%, while the new 2017 median dot comes in
at 3.75%. These shifts give off a more hawkish signal than the FOMC statement alone would suggest.
(cynthia.lin@wsj.com; @cynthialin_dj) (END) Dow Jones Newswires
14:31 EDT 1:31pmCDT
Reactions
With stocks now higher, and hitting a record intraday high minutes ago, as Yellen's presser is about to begin, a wall
could be approaching. JonesTrading's Michael O'Rourke says longer-term that QE3's wind-down and gradual
interest-rate hikes could take the steam out of economic growth and lead stocks to falter. "Bonds become more
attractive relative to equities as rates go higher." (dan.strumpf@wsj.com) (END) Dow Jones Newswires
NEW YORK, Sept 17 (IFR) 1:44pmCDT
Quote of the Day: “What a Mess!”
* As one pit trader put it, when describing the FOMC Statement snafu: “what a mess”, seems appropriate. The two
word message, awaited with baited breath “considerable time” for ZIRP kept in, but it’s all about the dots and the
higher estimates for Fed funds in 2017.
* The Eurodollar Reds through Blues led the overall selloff with pit traders relaying chunky lots hitting the pit and
the screen-based trades in these contracts. But the Greens have gotten hit the hardest – traders sticking with the
flatteners.
* In cash, the selling was nearly as robust in the front end – 3s and 5s took the brunt – out right and versus curve
flatteners – new arbs and some getting added on. Leverage funds and dealers dominated those curve bets, with retail a
bit more shell-shocked – waited for the pullback.
* Portfolio-types have been in buying the dip in the long end – outright, but also vs. joining in the curve flattening
mantra. Outright buying surfaced also on the Fed’s lowering of growth forecasts, which also led to some small hedge
fund short covering at the lows in the long end.
* We will sell a 50% position in the 3-year (1.06%) at the market looking to add on strength.
Roseanne.Briggen@ThomsonReuters.com/ms/kl Copyright (c) 2014 Thomson Reuters – IFRMarkets
BOSTON, Sept 17 (IFR) 1:52pmCDT
Reactions
* The FOMC dot plot moved substantially higher in 2016 and is higher than expected in 2017 and has heightened
sensitivity in that the Committee moved to eighth of one percentage point increments from quarter point increments.
* 2015 moved from about a 1.15% median to 1.375%/1.5%, 2016 moved from 2.50% to about 2.875%/3% (with 4
near 4% now), and 2017 was higher than expected at 3.75%/3.875%. Long run targets remain at a 3.75% median.
* The 3 and 5-year thus have been torched with 3s moving to the year's high at 1.101%, and 5s hit 1.826% which
illustrates a triple top on the daily. However shorts have covered and the sellin' can't go on in front of Yellen.
* Other notable changes in the SEP was the absolute slashing of GDP projections - 2015 was yanked down to 2.6% to
3% from 3% to 3.2%, 2017 is a stunner at 2.3% to 2.5% (if we were grading the Fed we would fail them on all the
monetary stimulus to only have a 2.4% 2017 real GDP) and 2014 was lowered again to 2% to 2.2%.
* There were two dissents from Plosser again and now Fisher, Fisher "believed that the continued strengthening of
the real economy, improved outlook for labor utilization and for general price stability, and continued signs of
financial market excess, will likely warrant an earlier reduction in monetary accommodation than is suggested by the
Committee's stated forward guidance. President Plosser objected to the guidance indicating that it likely will be
appropriate to maintain the current target range for the federal funds rate for "a considerable time after the asset
purchase program ends," because such language is time dependent and does not reflect the considerable economic
progress that has been made toward the Committee's goals." * The rabid equity bulls are only fixated on
"considerable time" not being removed, but they might at some point reconsider if they even comprehend the FOMC
SEP which shows slashed GDP estimates, the lowering of potential GDP, no real decrease in inflation, but higher fed
fund forecast dots which all spells lower real earnings especially as financial engineering peaks.
* Meanwhile shorts have covered yanking yields off the highs, as all traders are cognizant that you shan't be sellin' in
front of Yellen (and her likely dovish presser). Duncan.Balsbaugh@Thomsonreuters.com Copyright (c) 2014
Thomson Reuters – IFRMarkets
15:00 EDT 2:00pmCDT
Commentary
Doug Cote at Voya Investment says the Fed is behind the curve, with economic growth is stronger than policy
makers think, and the central bank could have stood to remove from its statement the pledge to keep interest rates low
for a "considerable time." He thinks rate hikes will come as soon as March, which could catch investors off guard and
lead to market volatility. But economic growth is strong enough to power the bull market through the first increases.
"They're going to have to raise rates sooner than the June time frame on economic growth," Cote contends, and that
"the market can withstand rising rates." (dan.strumpf@wsj.com) (END) Dow Jones Newswires
15:00 EDT 2:00pmCDT
Underutilization “Explained”
Fed chief Yellen's opening statement mostly recites developments in the economy and rehashes the FOMC statement.
But she did toss in her explanation of "significant underutilization" of labor resources: "These developments continue
the trend of gradual progress toward our employment objective. But the labor market has yet to fully recover. There is
still too many people who want jobs but cannot find them, too many who are working part-time but would prefer fulltime work, and too many who are not searching for a job but would be if the labor market was stronger."
(sudeep.reddy@wsj.com) (END) Dow Jones Newswires (wow, that was clear. NOT)
15:16 EDT 2:16pmCDT
Considerable Time, Again
Fed Chairwoman Janet Yellen says the FOMC committee remains comfortable with leaving "considerable time" in
the statement because the economic outlook hadn't changed much. She says "there is no mechanical interpretation" of
what the term means. Instead, she refers back to her earlier qualitative statement that the Fed will move sooner if its
progress is achieved sooner than expected. "It is highly conditional and it is linked to the committee's assessment of
the economy," she says. She is really pushing hard here not to offer any real definition of "considerable time,"
perhaps remembering the doubts created back in March when she said it means six months or so.
(sudeep.reddy@wsj.com) (END) Dow Jones Newswires
15:20 EDT 2:20pmCDT
San Fran
A recent San Francisco Fed paper noted a divergence between the Fed's views and market expectations on the path
for the policy rate. Fed Chairwoman Janet Yellen has a very long take on this, based on the idea that markets
participants can "have different views on the evolution of economic conditions." Fed officials are basing their
projections on what they view as most likely, she says. Market participants "are taking into account the possibility
that there can be different economic outcomes" even if they're not likely. (sudeep.reddy@wsj.com) (END) Dow
Jones Newswires
15:37 EDT 2:37pmCDT
Fed Fund Futures
An hour-and-a-half after the Fed released its latest statement, trading in CME fed-funds futures shows a small slip in
expectations for interest-rate increases. Odds a hike will happen at the closely watched June 2015 meeting fell to 45%
from 49% on Tuesday. The odds for March and April also slipped by 4-5 percentage points, to 12% for March and to
26% for April. Meanwhile, the betting that interest rates will be higher in July and September remain steady, at 71%
and 83%, respectively. (anna.raff@wsj.com) (END) Dow Jones Newswires
3:22pmCDT
Statement for Doves
Rising Fed rate projections got the market's attention for good reason today, but it's worth remembering who's
running the FOMC, who will be voting next year and who will not. The two dissenting members, Fisher and Plosser,
will not. Yellen went out of her way to point out that policy makers remain dependent on the data. The fact that the
lightly revised statement retained dovish highlights such as the "considerable time" characterization of low-rates
policy and "significant underutilization" of labor resources showed Yellen and the dominating doves remained
skeptical as ever about the labor market recovery. Fisher, a hawk, had recently said "I feel very listened-to by Janet."
One wonders what has changed. Markets had to respond to the "dot" forecasts, but Yellen is unlikely to rush into a
rate hike. See: http://on.wsj.com/X6CgfK chart: http://link.reuters.com/zep47v
Burton.Frierson@ThomsonReuters.com Copyright (c) 2014 Thomson Reuters – IFRMarkets
By Ira Iosebashvili 3:59pmCDT
Going Into Asia
The dollar soared to a new six-year high against the yen and rallied against the euro Wednesday after the Federal
Reserve gave more guidance on its plans to raise interest rates amid an economic recovery in the U.S. The greenback
rose 1.1% against the yen to a high of Y108.39, its strongest level since September 2008. The euro fell as low as
$1.2852, a new 14-month low. Emerging-market currencies weakened against the dollar as well, with the Turkish lira
hitting a fresh six-month low. Investors have piled into the dollar in recent weeks, betting that a strong U.S. recovery
would prompt the Fed to send a firmer signal on when it would raise interest rates from near zero. As of Friday, the
greenback has logged its longest winning streak in more than 17 years, rising against a broad basket of currencies for
nine straight weeks, according to the ICE U.S. Dollar Index. Higher interest rates would make the dollar more
attractive to yield-seeking investors.
While the Fed reiterated in its statement that it would be a "considerable time" before it raises rates, it also gave a
more detailed description of how it would manage an increase when the time arrives. Investors saw the comments as
another step toward lifting rates, which have been at current historic lows since 2008.
"The Fed is switching gears and talking about the actual modalities of raising rates," said Aroop Chatterjee, a
strategist at Barclays. "This is a significant change, and it is being reflected in a strengthening dollar."
The Fed's increasingly hawkish tilt comes as European and Japanese central banks are still trying to kick-start their
economies and relying on policies such as bond buying that tend to drive down interest rates and reduce the value of a
currency. Earlier in September, the European Central Bank surprised investors with a rate cut, bringing down the
euro. "In the big picture, the Fed is decreasing its balance sheet and looking to tighten policy, while the ECB and
Bank of Japan are on the opposite path," said Kiran Ganesh, a strategist at UBS Wealth Management. The Australian
dollar was recently down 1.4% at $0.8965. The pound was unchanged at $1.6280. Write to Ira Iosebashvili at
ira.iosebashvili@wsj.com (END) Dow Jones Newswires
4:06pmCDT
Fed More Hawkish Than Rest
For all the focus on the Fed's "considerable time" language and statement, the real news from the Sept FOMC was its
laying out of a normalization plan. While not new for close readers of the FOMC minutes, the Fed is now officially
relying on IOER to help peg the fed funds rate where it wants it, with the much ballyhooed RRP now being curtailed
and playing second fiddle (raising some worries about short-term rates being more volatile once raised). The Fed
made clear that it will let the balance sheet shrink naturally by refraining from reinvesting maturing bonds and
coupons, specifically noting it was unlikely to sell agency MBS. Treasury sales are also unlikely. Tame inflation
allows the rate hikes after lift-off to be very gradual. But the Fed's reduced role as a bond buyer and balance sheet
reduction may become its own source of volatility. Related comment [ID:nIFR4vRNKR] and chart:
http://link.reuters.com/cyr95t eric.burroughs@thomsonreuters.com Copyright (c) 2014 Thomson Reuters –
IFRMarkets
5:43pmCDT
FX Jumps
See (More) USD/AXJ is set to open sharply higher in the wake of the FOMC statement/Yellen presser. WSJ Jon
Hilsenrath basically laid out what the Fed would do over the past few weeks but the reactions in the FX market
was one of shock horror. US Treasury yields rose but only by 3bps in the 10-yrs. Stocks ended small up but it
was the FX market that saw the biggest reaction undoubtedly driven by leveraged flows. For most pairs this is
now a strong USD trend with the leveraged crowd happy to ride it for all it is worth. With USD/JPY through 108,
USD/AXJ was driven sharply higher with KRW NDFs up to 1043 while IDR NDFs hit 12150 as players grabbed
whatever offers they could find. It all looks overdone in FX land but don’t look for much of a retracement. The trend
is your friend so buy dips in USD/AXJ. Peter.Whitley@thomsonreuters.com Copyright (c) 2014 Thomson Reuters –
IFRMarkets
5:46pmCDT Ouch! Clockwise: AUD/USD, GBP/USD, USD/CHF, EUR/USD, USD/CAD, USD/JPY, EUR/CHF