Expectations for the FOMC minutes from 15 major banks
The following are brief expectations for the FOMC minutes from the June meeting as compiled from the related research reports of 15 major banks.
Overall, they're looking for clues on: 1- the timing of the balance sheet reduction plan, 2- the concern over the weaker "transitory" inflation data.
On the USD front, the consensus seems to to downplay to the June minutes as a major market mover, while seeing risk-reward leaning slightly to favor USD modest recovery this week.
SocGen Research: As for the 'big event' of the FOMC Minutes, we'll see how they pitch the debate about normalisation against a backdrop of strong asset markets but very soft inflation readings going into the meeting last month. How many times can you put 'transitory' into a set of Minutes? We will also crawl over any comments about the plan to start shrinking the Fed's balance sheet after the summer.
Credit Agricole Research: In the US, today's main focus will be on the FOMC meeting minutes covering the June meeting. According to our economists, they will be read for insights on the timing of the expected balance sheet reduction plans as well as the final rate hike projected in the June dot plot. They believe that the balance sheet reduction will be announced at the September meeting and implemented in October. The discussion in the minutes may offer insights into the conditionality attached to the next rate hike by various members, given recent inflation indicators. The minutes may be overshadowed somewhat by the early release of the FOMC's semiannual Monetary Policy Report to Congress on Friday. Hence, today's release is unlikely to prove a major market mover. When it comes to the USD we stick to the view that it should be bought against both the CHF and JPY.
BofAML Research: The minutes of the June FOMC meeting are likely to sounds more cautious than the statement or press conference...Overall, we think the minutes will reveal some concern over the weaker inflation data, but still point to the implementation of balance sheet normalization in the September meeting and a path of higher rates.
BTMU Research: We already know the details of the balance sheet shrinkage plan, outlined after that meeting but what we do not know is the timing of when it might begin. The minutes might well give a sense of a timeframe the FOMC might be leaning toward. The consensus is very much toward a start in September. It seems unlikely the Fed would outline a plan that wasn't intended to be implemented at least by the time of the next meeting that incorporates a press conference - that will be on 20th September. Any evidence confirming that in the minutes tonight would help provide some support for the dollar, especially if accompanied by some better economic data over the coming days.
SocGen Research: As for the 'big event' of the FOMC Minutes, we'll see how they pitch the debate about normalisation against a backdrop of strong asset markets but very soft inflation readings going into the meeting last month. How many times can you put 'transitory' into a set of Minutes? We will also crawl over any comments about the plan to start shrinking the Fed's balance sheet after the summer.
Barclays Research: The FOMC minutes should contain little additional information, as the details on the balance sheet run-off were disclosed in the statement. We look for clues on the degree of concern participants have about the state of inflationary pressures. Although we expect data to reaffirm the resilience of the US job market and steady activity, the USD is likely to be on the sidelines against majors, as enthusiasm about the gradual removal of accommodation elsewhere moderates.
SEB Research: We will be looking for more details on how convinced FOMC members are that the inflation weakness indeed is temporary. We stick to our forecast that the Fed will hike at the September meeting and there will probably be little additional information in the statement that would challenge this view. However, going forward, inflation data and Fed communication will be central for our outlook and we might have to push back our expectations for a September hike to December.
Morgan Stanley Research: The minutes from the Fed's June meeting next Wednesday are likely to show that policymakers continue to view the outlook as warranting gradual rate hikes even in the wake of the weaker realized inflation data. We are bearish on USD as US rates continue to underprice the Fed while hawkish comments from other G10 central banks have propelled the EUR, CAD, and GBP higher.
RBC Research: At that meeting, the Fed raised the Funds target band by 25bp and gave some detail on the likely path of balance sheet reduction. Attention is likely to focus on the latter and any additional detail on the reasoning behind the very slow pace of tapering. Expect the minutes to further underline the message that balance sheet reduction is not seen as a substitute for higher rates, which would be positive-USD (as was the announcement on the day of the meeting).
LLoyds Research: Our studies suggest a stronger USD correction can be seen in the short-term, so tonight's release of the June FOMC minutes will be of interest. At the meeting, the committee raised policy rates and indicated that the process of shrinking the inflated balance sheet is likely to begin relatively soon. The minutes will be scrutinised on the likely timing of this process.
Deutsche Bank Research: it'll be interesting to see how much of a debate there is around the inflation outlook given some of the Fed speak recently. Along with that, it'll be interesting to see if there are any further details around balance sheet normalization.
UniCredit Research: The focus will be on indications of the sequencing of the next steps, i.e. the beginning of balance-sheet normalization and the next rate hike. Our baseline scenario is for another rate hike in September, and the start of balance-sheet normalization in December.
Danske Research: will look out for comments on when the Fed will start 'quantitative tightening' (shrinking the balance sheet) and internal discussions about how the FOMC members see the trade-off between low unemployment and low inflation.
ING Research: We learnt at the June meeting that the Fed will unwind its balance sheet by allowing a capped amount of treasuries/MBS to roll off the balance sheet each month. The plan is to start the process with US$10bn per month in balance sheet shrinkage - US$6bn from Treasuries, US$4bn from agency & MBS - rising by similar amounts at three-month intervals over 12 months until the monthly 'caps' for Treasuries and MBS reach US$30bn and US$20bn, respectively. The only real remaining question is when, and there's a risk that we get the answer in today's minutes.
UOB Research: Federal Reserve will release minutes from its 13/14 June FOMC meeting in which officials raised rates for the second time this year. Since February, Fed officials have been dialing up their hawkish rhetoric gradually amid "transitory" weakness in U.S economy. The minutes are likely to bolster the case for further normalization in the second half of 2017, in the form of another rate hike and/or the start of trimming Fed's gigantic 4.5 trillion balance sheet. In all, look for a higher USD by the end week.
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