Markets disappointed by the Fed. The US central bank did not signal any further accommodation, and disappointed those expecting at least an extension of the lowrate period to 2015. It did, however, leave the door open to further measures, saying it 'will closely monitor incoming information on economic and financial developments and will provide additional accommodation as needed'. There was an immediate negative reaction in most risky markets but they settled after about 20 minutes. Indeed, the S&P500 rebounded to be unchanged on the day. The CRB commodities index is also unchanged, oil +0.7%, copper -1.77% and gold -0.8%. US 10yr treasury yields, which had drifted down to 1.49% ahead of the FOMC, rose to 1.54% afterwards. Earlier US data releases (manufacturing activity disappointed but private sector payrolls surprised) had little market impact.
Currencies were more responsive to the FOMC, the US dollar index (DXY) rising by around 0.6%. EUR fell from 1.2300 to 1.2222 in response. USD/JPY jumped from 78.06 to 78.50. AUD peaked during the London morning at 1.0543, and fell from 1.0527 to 1.0448 after the FOMC. NZD similarly peaked earlier at 0.8144 and fell to 0.8079. Milk prices rose at the fortnightly international auction. AUD/NZD fell from midday London's 1.2965 to 1.2930, AUD the higher beta on the day.
Economic wrap
US FOMC statement more forceful re further policy action, saying it 'will provide additional accommodation as needed' this replaced 'is prepared to take further action as appropriate' in the June statement. The economic assessment was downgraded from 'the economy has been expanding moderately this year' in June to 'economic activity decelerated somewhat over the first half of this year' in today's statement. The exceptionally low rates to end 2014 conditional commitment remained in place.
US ISM factory index edges up a tick to 49.8 in Jul. For the second month running the composite headline points to a stalled industrial sector, after readings in the 52.5- 55.0 range in the first five months of the year. The detail showed a slight acceleration in production to 51.3, ongoing contraction in orders (48.0) and slower growth in jobs (52.0).
US ADP private payrolls rise 163k in July. That compares to a 138k monthly average through Q2 and 205k in Q1 this year. So on this measure the slowdown in jobs growth recorded in April-May has been partially reversed since then. US construction spending rose 0.4% in June, with residential construction posting its third consecutive solid gain, but the non-residential component stalling.
Euroland PMI manufacturing revised down a tick to 44.0 in final July reading.
UK PMI factory drops from 48.4 to 45.4 in Jul, its third sub-50 reading in a row, and the lowest reading in over three years. Other July surveys showed a 1.0% yr rise in the BRC shop price index, its weakest since late 2009 and an indication that the CPI will continue to decelerate; and a 0.7% fall in house prices, pulling the annual pace of decline for the Nationwide index to –2.6% yr, also its lowest since 2009
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