Equity Markets

Asian Equity Market

Some weakness seeped into Asian trade on the day. In China, the SHCOMP fell -0.36% on Wednesday, reversing 3 straight days of gains. The HSI also followed suit, closing near unchanged and reversing from earlier gains. The Nikkei also closed essentially flat, while the Kospi reversed from highs, dropping -0.31%, as it reversed from levels last seen on 13-Aug intraday.

European Equity Market

In Europe, Spain’s Ibex rose +1.06% to lead the major indices in a mostly mixed day. The UK’s FTSE 100 dropped -0.44% to be the laggard.

US Equity Market

In the US, the Nasdaq declined -1.67% despite the blockbuster Snowflake IPO, which opened near an amazing 160x sales. There was some selling in the S&P 500 after Fed Chair Powell said that there was no plan to buy more bonds. Volatilities across the different indices closed higher, led by the VXN’s +5% advance. Amongst the S&P sectors, energy was the outperformer at +4.0%, while technology lagged the rest at -1.5%.

Fixed Income

Investors on Wednesday pushed longer-term U.S. Treasury yields to their highest levels this week and steepened the yield curve after the U.S. Federal Reserve said it would keep interest rates near zero until inflation is on track to modestly exceed 2% inflation target. Long-term yields rose 1.80-2.80bps while short-term yields fell -0.20-0.51bps. This had the effect of steepening the US 2Y-10Y curve to 55.99bps. Foreign holdings of U.S. Treasuries grew for a third straight month in July. Overseas investors held $7.087 trillion in U.S. Treasuries in July, from $7.039 trillion the previous month with Japan the largest holder at $1.293 trillion. 10Y bunds fell -0.5bps, while Italian bond yields fell 2.9bps at 0.969 and hit 0.962 the lowest in over six months ahead of Fed meeting.

Commodities

Oil markets rebounded for another day despite disappointing outlook from the EIA and the OPEC earlier in the week. Brent was higher by +4.17%, while WTI rose +5.01%, with the OPEC committee meeting today in focus. Brent’s 2-8 month spread also tightened slightly, moving away from end-may highs. Precious metals were relatively unmoved despite the Fed dot-plot showing low rates till 2023. Gold was up +0.26%, attempting a few times to get above $1970 but eventually failing. In base metals, volumes were light as traders looked towards the FOMC for positioning. Zinc was the outperformer for the day at +1.26%.

Currencies

The U.S. dollar gained on Wednesday in choppy trading after the Federal Reserve kept interest rates pinned near zero and said it expects the U.S. economic recovery from the coronavirus crisis to accelerate with unemployment falling faster than the central bank expected in June. The dollar index against a basket of currencies gained 0.18% to 93.214. The pound soared 0.61% to 1.2967 on reports that UK offered tentative concessions on fisheries in trade talks with the EU and ahead the BOE meeting today. Offshore yuan rose 0.52% to 6.7453 and hit a May 2019 high of 6.7426 on the back of stronger Chinese data for August. The safe-haven Japanese yen rose 0.47% to 104.95 and hit a 2 ½ month high of 104.81 against the greenback .

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