U.S. saw two-way trade on Wednesday with morning weakness offset after a strong cash open before selling off best levels into the closing bell. Sectors were mixed, Energy, Consumer Discretionary, Financials and Tech outperformed, while Utilities, Real Estate and Consumer Staples lagged. There were several noteworthy developments. On geopolitics, Axios reported that President Trump has moved closer to a major war with Iran, reigniting concerns in the region, resulting in oil prices rallying. Meanwhile, US data was overall strong with Durable Goods, Housing Data and Industrial Production beating analyst expectations. Meanwhile, the FOMC Minutes continue to show a divide on the rate outlook at the Fed, but several preferred two-sided guidance, noting upward adjustments could be appropriate if inflation remains above target. The strong data and geopolitical developments supported the Dollar, seeing it outperform, while the New Zealand Dollar lagged after a dovish RBNZ Meeting hold overnight. T-notes were lower across the curve on the data and upside in energy prices, while a weak 20-year auction did no favours. There was little reaction to the FOMC minutes, aside from some chop in USD/JPY. It noted that rate checks conducted by the New York Fed heading into the meeting were solely on behalf of the US Treasury, and it confirmed that there were no intervention operations in foreign currencies during the intermeeting period. Gold and Silver prices rallied on Wednesday, while Bitcoin saw further pressure. The FOMC’s January Meeting Minutes showed a broad agreement to hold rates at 3.50-3.75%, with almost all participants backing no change, while a couple preferred a 25 basis points cut on the grounds that policy remained restrictive and labour market risks persisted (Miran and Waller). Those favouring a steady stance argued that, after 75bps of easing last year, policy was within estimates of neutral, and most expected supportive financial conditions and fiscal settings to underpin growth. However, views diverged on the path ahead: several indicated further cuts would likely be appropriate if disinflation progresses as expected, whereas others judged easing should await clearer evidence that inflation is firmly returning to target. Meanwhile, several favoured two-sided guidance, noting upward adjustments could be appropriate if inflation remains above target. However, all agreed policy was not on a preset course and would be informed by a wide range of incoming data, the evolving economic outlook, and the balance of risks. Inflation was seen as markedly lower than its 2022 peak but still somewhat elevated, with core goods, including tariff effects, cited as key drivers, and risks of persistence viewed as meaningful. Labour market conditions were described as stabilising, with low layoffs but subdued hiring, and downside employment risks judged to have diminished, though not disappeared. On the US Dollar, the Minutes noted a marked Dollar depreciation ahead of the meeting after reports that the Desk had conducted “rate checks” on the USDJPY pair, signalling heightened market sensitivity to potential intervention. However, the Committee confirmed that no foreign currency operations were undertaken for the System’s account during the intermeeting period. The manager noted that quotes were requested solely on behalf of the US Treasury in the NY Fed’s role as the fiscal agent for the US. Durable Goods for December fell 1.4% M/M, but less than the expected -2%, against November’s rise of 5.4%. Ex-Defense fell 2.5% M/M (prev. +6.6%), while Ex-Transport rose 0.9% from 0.4%, more than the consensus of 0.3%, and also above the top end of the forecast range. The headline was down, as expected, but Oxford Economics notes the more important development was another upside surprise in core orders, which provides a clearer signal of future business spending and bolsters its forecast for solid equipment investment in 2026. OxEco adds that while orders are the more forward-looking measure, shipments are what count towards GDP, and these were relatively stronger. As such, the consultancy is to its nowcast of solid Q4 business equipment investment, but subject to change with Thursday’s trade data. Industrial Production rose 0.7% in January, above the 0.4% forecast and accelerating from the downwardly revised 0.2% December reading. Manufacturing production rose 0.6%, above the 0.4% forecast, and also accelerating from the downwardly revised flat print in the previous report. Capacity utilisation rose to 76.2% from 75.7% but fell short of the 76.5% forecast. Within the report, Oxford Economics note that “Extreme winter weather effects predictably lowered mining output but boosted utilities production. The upside surprise was concentrated in manufacturing. OxEco expect “manufacturing to continue growing this year thanks to the AI tailwind, which will benefit not only computers and electronics but also electrical equipment”. The desk also highlights that a fiscal boost, plus lower interest rates “will allow non-AI sectors to find their stride as well, and the potential for further tariff reductions is an upside risk for which to watch out.” Elsewhere, both Oil and Gold surged, closing higher by 4.65% and 2.35% respectively.
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