What assets to monitor, or what 5 major lenders expect from FOMC minutes

The minutes from the U.S. central bank's September meeting, due at 2 p.m. Eastern, will be scrutinized for many reasons. Below are the expectations from five major banks. Some of the lenders advise those who want to bet on the weaker USD to wait until tonight, while others suggest we should monitor equity markets...

BofA Merrill:

The minutes of the September FOMC meeting are likely to be scoured for clues about how close the non-hike decision was and what the Committee needs to see in order to hike later this year. Relative to market expectations, which interpreted the statement as very dovish and are not pricing a rate hike until well into 2016, the minutes could appear somewhat hawkish.Several recent Fed speakers have emphasized that the September meeting was a very “close call,” and that conditions for liftoff are likely to be satisfied soon. Market participants will be looking for signs of how strongly held this view actually is, and what conditions – particularly on the global front – might derail that expectation. Our base case is that the Fed begins a very gradual normalization process with liftoff at the December meeting. In a nutshell, the debate in the minutes is likely to boil down to the continuing strength of the labor market recovery versus continued low inflation and risks to the outlook originating from abroad. If the Committee sounds fairly convinced that there has been sufficient improvement in the labor market to start normalization – perhaps some residual slack notwithstanding – then that would be a hawkish message for the markets. We expect a divided Committee on the issue of “hidden slack,” the cyclical nature of the low participation rate, and the signal to take from low wages.

Commerzbank:

Comments by various FOMC members following the meeting illustrated that the FOMC was indeed very close to raising interest rates at the time. That is likely to be reflect-ed in the minutes of the meeting. So the minutes are likely to sound quite hawkish. Even though it is of course clear that the meeting took place before the last disappointing labour market report the minutes are likely to illustrate once again to the market that even the nu-merous doves amongst the FOMC are beginning to review their position. So there is a pos-sibility that this will shake the currently dominant market view that a Fed rate hike is not imminent. So whoever is going to bet on a weaker USD should perhaps wait for tonight’s publication of the minutes.

JP Morgan:

Today’s FOMC Minutes will be worth watching to get a sense of how close a call the last meeting was, although given the developments since the meeting it does seem like old news at this point, and would be surprised if any reactive move were to extend materially as a direct result of the content of these minutes. Maintain a neutral/tactical bias for now in Euro, keeping a close eye on equity markets.

Credit Agricole:

Today’s focus is on the September FOMC minutes. They should shed light on the Fed’s thinking in regards to domestic and international risks. We expect to read that the committee decided to delay firming policy due largely to global financial turbulence – notably China. The minutes are likely to show the tighter financial market conditions that resulted from the EM shocks (stronger dollar, wider credit spreads and equity market declines) was key in driving the Fed’s decision to remain on hold. These shocks, in turn, could hamper the Fed’s ability to hit its medium-term inflation target. But the minutes are also likely to show that the Fed’s upbeat view of the labour market persists. In this regard, we think the Fed will emphasise the strength of the labour market, which continues to remain their favoured forecasting tool for inflation. In the end, we doubt the minutes will sound an all clear on a December rate hike. Even so, it is likely the minutes will show the Fed was much closer to a rate hike than many believe, helping to stabilize the recent sell-off in the greenback.

RBS:

The clear concern expressed by the Chair at her post-decision press conference about international developments, and the decision to add new phrases about these international developments to the FOMC statement, likely means that a discussion of EM softness, the stronger USD, and potential spillovers to the US featured prominently in the minutes. Still, Chair Yellen said that the committee discussed hiking the policy rate during the September meeting, and an indepth discussion of the debate over whether to begin rate hikes will certainly be notable. The nuance of this discussion may drive the USD reaction – a sense that most members were united in the view to leave rates on hold in September may provide a sense of calm that rates are likely to remain low, but a strong debate over the merits of a move in September may give the sense that the Fed was much closer to hiking the policy rate than the commentary or forecasts implied. Of course, these minutes pertain to a meeting that took place before the disappointing September NFP report. On procedural measures, any mention of adding a press conference to the October meeting could be taken as hawkish.