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What's Weighing on the Federal Reserve?

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Brainard's dovishness reduces Fed expectations, oil drops on IEA data, and calm takes over in bonds and equities. Here are some of the things people in markets are talking about today.

Dovish Brainard

Federal Reserve Governor Lael Brainard called for "prudence" in the timing of the removal of policy accommodation in what was the last Fed comment ahead of the quiet period into next week's FOMC meeting. The argument over the timing of a rate rise seems to have come down to whether low unemployment levels pose an inflation risk. With futures-implied probability of a rate hike in September close to just 20 percent, it seems investors are becoming more convinced that inflation risk will not manifest for some time yet. JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon is not on the same page, calling on the central bank to raise rates sooner, rather than later. 

Oil falls

The roller-coaster in crude continues this morning, with the price of a barrel of West Texas Intermediate for October delivery dropping to $45.16 by 5:28 a.m. ET to wipe out all of yesterday's gains. This morning's drop came after the International Energy Agency said that the surplus in global oil markets would last into late 2017, longer than previously estimated. As part of the same release, the IEA said that Saudi Arabia had overtaken the U.S. as the world's largest oil producer. Meanwhile, ultra-low oil prices and rock-bottom shipping rates is creating a host of exotic new trade routes for crude.

Chinese economy bounces back

Factory output, investment, and retail sales data for August in China all exceeded economist estimates in signs that the world's second-largest economy is proving more resilient than previously thought. Steel production also rebounded from July's disappointing level, pushing total year-to-date production to within 0.1 percent of last year's pace. Investors remain wary of the Asian economy, however, with concerns over a possible over-heating housing market still prominent. Chinese stocks trading in Hong Kong posted their biggest two-day loss since February as the improving data reduced the chances of further stimulus from the People's Bank of China.

Equities flat, bonds rally

Overnight, the MSCI Asia Pacific Index fell 0.1 percent with Japan's Topix index ending the session little changed. In Europe, the Stoxx 600 Index was also unchanged at 5:56 a.m. ET after a three-day losing streak. S&P 500 futures were 0.6 percent lower following yesterday's post-Brainard rally into the close. It is a different story in bond markets, however, with developed government debt rallying across the globe this morning. 

U.K. inflation, German confidence

Inflation in the U.K. remained unexpectedly unchanged at 0.6 percent in August, though signs of import price pressure are emerging following the sharp drop in sterling after the Brexit referendum result. The pound fell against the U.S. dollar following the data release and was trading at $1.3265 at 6:25 a.m. ET. German investor confidence remained unchanged at 0.5 for September, according to a report from the ZEW Center for European Economic Research in Mannheim - a disappointment for economists surveyed by Bloomberg who had been expecting an improvement to 2.5. 

What we've been reading 

This is what's caught our eye over the last 24 hours.