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Choppy market conditions extended their stay in the financial markets during the New York session, with some degree of risk aversion going on. A bit of confidence was restored in the latter part, however, as a couple of Fed officials shared their optimistic outlook in their speeches.

Even so, the lack of top-tier economic releases left traders wary of other potential catalysts, possibly from updates on Brexit talks or Italy’s budget. Crude oil was still in a weak spot as lower demand forecasts and Saudi’s pledge to boost supply weighed on prices.

  • Richmond manufacturing index down from 29 to 15 vs. 25 forecast
  • Fed official Bostic: Another interest rate hike possible this year
  • Bostic: Headwinds from trade uncertainty or market volatility won’t throw economy off-track
  • Fed official Kaplan: Rates should be moving to neutral territory
  • Kaplan: Unemployment falling but at a slowing pace
  • Republican lawmaker Brady to work with Trump on middle-class tax cuts

Major Events/Reports:

Risk-taking stumbles then recovers

Market sentiment seemed to be all over the place during the U.S. hours as risk-off vibes from the earlier session carried over. Stocks got knocked down but got back up again (You are never gonna keep me down) as the earnings outlook weighed but Fed optimism and more tax cut prospects came in play.

  • Dow 30 index fell to a low of 24,768.79 then recovered to 25,191.43 (-0.50%)
  • S&P 500 index pared its losses to 15.19 points at 2,740.69 (-0.55%)
  • Nasdaq is down 31.09 points to 7,437.54 (-0.42%)

Crude oil was still on slippery footing thanks to Saudi Arabia’s pledge to boost supply to make up for the effect of U.S. sanctions on Iran. Gold managed to score safe-haven gains:

  • Gold is up to $1,230.45 per troy ounce (+0.69)
  • WTI crude oil futures fell to $66.02 per barrel (-4.47%)

Analysts also pinned the blame for market jitters on the upcoming U.S. elections amid uncertainty when it comes to trade war with China. Yields were mostly lower as investors sought the safety of bonds.

Later on, riskier assets clawed their way up from their intraday lows, likely on Fed optimism, stronger prospects of more tax cuts, and some profit-taking.

Mostly positive Fed remarks

A handful of Fed officials had testimonies scheduled throughout the session, but surprisingly perma-dove Kashkari didn’t share any of his policy thoughts for now.

As for FOMC official Bostic, who has also previously had a dovish tilt, another interest rate hike could be in the cards before the end of this year. He did acknowledge that there are headwinds from trade uncertainty and market volatility but assured these won’t put the economy or the Fed off-track. After all, there are tailwinds from tax reform and fiscal stimulus.

Bostic said:

“Unless the data talk me out of it, I view a continued, gradual removal of policy accommodation as appropriate until we get to a neutral policy rate. There is little reason to keep our foot on the gas pedal.”

Meanwhile, Fed official Kaplan who is not a voting member this year cautioned that growth could slow in the next couple of years. He pointed out that unemployment is falling at a slower pace and that rising wage pressures won’t cause runaway inflation. Still, he noted that the Fed should carry on with its gradual move to neutral policy.

Times report on Brexit transition

The spotlight turned back to Brexit towards the latter part of the session as The Times reported that it got a leaked version of the U.K. government’s Brexit transition plan.

The report revealed that the U.K. would have the sole option to extend the transition period beyond 2020 in case the implementation plan for the Irish border isn’t ready by then.

However, a Downing Street spokesman clarified later on that this isn’t the final decision yet. He reiterated PM May’s remarks that an extension of the implementation period won’t be necessary and that the U.K. government won’t accept a position could find itself locked in an “alternative, inferior arrangement.”

Major Market Mover(s):

USD

The scrilla appeared to be tracking U.S. stocks as it also fell earlier in the session before pulling up on mostly upbeat Fed rhetoric and a slight recovery in risk-taking.

USD/JPY slipped to a low of 111.95 then bounced back to 112.47; EUR/USD hit a high of 1.1494 then retreated to 1.1472; GBP/USD fell from 1.3045 to a low of 1.2980, and USD/CHF bounced from .9940 to a high of .9962.

JPY

The yen was off to a running start as risk-off flows were in play but it wound up returning some of those gains before the session closed.

EUR/JPY fell to 128.22 then pulled up to 129.01; GBP/JPY bounced off 145.30 to 146.10; AUD/JPY recovered from 79.05 to 79.75, and CAD/JPY rebounded to 85.97.

Watch Out For:

  • 12:30 am GMT: Japanese flash manufacturing PMI (gain from 52.5 to 52.6 expected)