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Headlines were focused on a different hike, the one where Trump wanted tariffs on China to be raised from 10% to 25%, as the FOMC decision turned out to be a dud.

Economic data from the U.S. came in mixed, with industry PMI readings suggesting a possible NFP disappointment.

  • U.S. ADP non-farm employment change up from 181K to 219K
  • Canadian manufacturing PMI down from 57.1 to 56.9
  • U.S. Markit final manufacturing PMI downgraded from 55.5 to 55.3
  • U.S. ISM manufacturing PMI down from 60.2 to 58.1 vs. 59.4 forecast
  • U.S. crude oil inventories rose by 3.8M barrels vs. expected 2.6M drop
  • FOMC kept monetary policy unchanged as expected
  • FOMC: Labor market continues to strengthen
  • FOMC: Risks to outlook remain roughly balanced
  • Trump to announce higher tariffs of 25% on $200B Chinese goods

Major Events/Reports:

Mixed U.S. reports

The latest batch of reports from Uncle Sam turned out mixed with slightly more red this time, casting some doubts on the Fed’s relatively optimistic outlook.

But first the good news. The ADP non-farm employment change reading showed a larger than expected 219K increase in hiring versus the estimated 186K figure. This was also a decent improvement over the earlier 181K gain.

However, the ISM manufacturing PMI turned out weaker than expected as the index fell from 60.2 to 58.1, lower than the estimated drop to 59.4. This reflected a weaker pace of industry expansion, dragged down by a drop in the prices component from 76.8 to 73.2 and in supplier deliveries.

On the plus side, the jobs component rose from 56.0 to 56.5, also signaling a potentially upbeat NFP release later this week. Meanwhile, the Markit version of the manufacturing PMI was downgraded from the initially reported 55.5 figure to 55.3.

FOMC decision

The FOMC announcement didn’t really spark fireworks among dollar pairs as the central bank simply sat on its hands as expected. The Fed decided to keep rates on hold at <2.00% while mostly rehashing their earlier statement.

Still, it’s worth noting that policymakers maintained their assessment of strong labor market conditions and how economic activity has been rising at a strong rate. In particular, officials highlighted strength in household spending and business investment.

The official announcement emphasized their dual mandate of fostering full employment and a return to the 2% inflation target, concluding that they will continue to assess a wide range of information to gauge if any changes in policy will be needed. Nothing much to see here, really.

Stocks mixed, bonds up

U.S. equities ended the day mixed as the tech sector rout continued to drag indices lower and trade war jitters spooked investors.

  • Dow 30 index is down 81.37 points to 25,333.82 (-0.32%)
  • S&P 500 index is down 2.93 points to 2,813.36 (-0.10%)
  • Nasdaq is up 35.50 points to 7,707.29 (+0.46%)

Rumors of Trump wanting increasing tariffs from 10% to 25% on $200 billion worth of Chinese goods already circulated earlier this week. In this trading session, Trade Representative Robert Lighthizer  confirmed in a statement:

“The increase in the possible rate of the additional duty is intended to provide the administration with additional options to encourage China to change its harmful policies and behavior and adopt policies that will lead to fairer markets and prosperity for all of our citizens.”

Commodities found themselves in the red, possibly due to a bit of dollar strength and risk-off moves.

  • Gold fell $8 to $1,216 per troy ounce
  • WTI crude oil is down $0.92 to $67.84 per barrel

U.S. bond yields, on the other hand, drew support from the Fed’s slight hawkish tinge on assuring that borrowing costs would move gradually higher.

Major Market Mover(s):

USD

The Greenback encountered a bit more selling pressure leading up to the FOMC announcement, but gained a bit of safe-haven demand on Trump’s tariffs plan.

USD/JPY retreated from 112.00 to a low of 111.63 then bounced to 111.76, USD/CHF fell from .9922 to a low of .9904, GBP/USD is up from 1.3111 to a high of 1.3145 then fell back to 1.3109.

JPY

The yen held on to the top spot as some dollar hesitation came into play on resurfacing U.S.-China trade tensions while risk-off moves lingered.

EUR/JPY slid from 130.84 to a low of 130.04, GBP/JPY is down from 147.07 to a low of 146.32, AUD/JPY retreated to 82.69, and NZD/JPY fell to 75.87.

NZD

Returning trade war troubles and risk aversion proved bearish for the higher-yielding Kiwi, which found itself at the bottom of the heap for the day.

NZD/USD tumbled from .6802 to a low of .6787, NZD/JPY dropped from 76.20 to 75.77, EUR/NZD popped up to 1.7168, and GBP/NZD is up to 1.9315.

Watch Out For:

  • 1:30 am GMT: Australia’s trade balance (surplus to widen from 0.83B AUD to 0.91B AUD)