– North Korea launches a rocket, claiming to have put a satellite into orbit
– Minimal effect on Asian asset markets
– Focus on the FOMC
What to watch for today
USD: FOMC expectations. Our economists expect the FOMC’s policy statement today to announce that the Fed will be complementing its ongoing $40bn/month outright MBS purchases with a newly announced $45bn/month in Treasury purchases. This would keep total purchases of long-end Treasuries unchanged after Operation Twist ends this month and the Fed stops selling front-end paper. Markets should be well-priced for this outcome and we think there will not be material negative impact on the USD. To the extent there is a risk scenario, it might be that the Fed could decide on a smaller pace of new Treasury purchases, not fully replacing the demand lost as Twist rolls off. If this were to happen, we would expect the USD to benefit broadly. Meanwhile, we think that the FOMC is warming up to the “Evans Rule”, which would adopt economic thresholds to use in its forward guidance, but that no announcement on this front will be made in this week’s meeting. The Fed’s decision will be announced at 17:30 GMT, followed by the release of projections at 19:00 GMT and the press conference 19:15 GMT.
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