The FOMC maintained a fairly upbeat assessment of the economy but added a line to suggest QE risks go two ways. The Swiss franc was the best performer on the day while the Australian dollar lagged on risk aversion. In Asia, the HSBC China PMI is the highlight.
Ahead of the FOMC decision, most analysts expected a slightly more downbeat assessment of the economy given the recent slide in economic data but the Fed barely tweaked statement. This suggests officials want more time to evaluate if the weakness is transitory.The most notable change was a line saying the FOMC is “prepared to increase or reduce the pace of its purchases” The direction of markets and Fed officials has been toward tapering purchases but this could be a signal that risks go both ways.
The market was erratic following the release with 50 pip whipsaws in the euro and yen. The indecision is understandable given there was no strong signal in the statement and because of uncertainty ahead of Thursday's ECB meeting.
Risk trades were also suffering after April ADP jobs report increased by 119K. It was the slowest employment growth since September and missed the 150K consensus. The ISM manufacturing index was very close to expectations at 50.7 but the employment and new orders components were weak.
A softening global economy was clearly the theme on Wednesday with oil prices down 2%. The theme will remain in focus in the upcoming session with the HSBC China PMI scheduled for 2145 GMT and the official non-manufacturing PMI 45 minutes earlier.
China's official PMI a day ago was a touch soft at 50.6 and the HSBC survey is forecast at 50.5. Look for the Australian dollar to fall further on a weak reading, especially a sub-50 number.
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