Daily Market Color

Financial Markets Stay in Risk-On Mode Ahead of FOMC Meeting

Last week’s risk-on sentiment in global financial markets carried into Monday’s trading session as tensions with North Korea remain in check and investors look ahead to the Fed’s two-day meeting this Tuesday and Wednesday.  Stock markets welcomed the news that the US would seek a “peaceful solution” to the nuclear feud with Pyongyang, as stated by Secretary of State Rex Tillerson in an interview with CBS yesterday.  Tillerson confirmed President Trump would urge members of the United Nations to work together in resolving the standoff with North Korea without war, but did provide the caveat that “if our diplomatic efforts fail, though, our military option will be the only one left.” 
On Wednesday, the Fed will conclude its September policy meeting with the expectation of it choosing to leave rates unchanged and providing a more definitive timeline for the unwinding of its $4.5 trillion balance sheet built up during QE.  Odds for an additional rate hike by the FOMC in December currently reside near 50%, pushed higher over the last week after the release of the firmer inflation data .  Abroad, the Bank of Japan is scheduled to meet on Thursday and similar to the US, is projected to leave benchmark borrowing rates unchanged and include the potential for an announcement of its plan to decrease monetary stimulus.



All three major US stock indices reached new record highs as they traded 0.10%-0.35% higher on the day, boosted by bank, tech, and industrial shares.  Treasurys sold off for a 7th consecutive trading session, with Treasury yields/swap rates up 1-3 bps across the curve in a bear steepening pattern.  The yield on the 10-year note is now near 2.23%, its highest level in more than a month.  The US dollar gained 0.4% against major currencies, highlighted by a 0.8% rise against the British pound to $1.35/GBP.  In commodities, gold futures declined to a three-week low of $1,312/ounce, down 0.6% on the day as the demand for haven assets has softened.  Crude oil continues to trade near $50/barrel, close to unchanged for the trading session.


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