Naturally, it was the word’s of the Fed that held the greatest weight – this time, contained within their latest monetary-policy minutes. The information contained within them wasn’t new; however, it did confirm the stance makes have recently savoured. The majority of the Fed saw the need to remain qualifiedly “patient” in the face of “significant uncertainties”.
3. US inflation-risk still low: The Fed’s dovishness was backed by US CPI overnight, which acted as tangible evidence for that central bank’s policy stance. Though headline inflation beat economist’s estimates, this was largely due to energy price volatility, with the “core” component of the number falling to 2 per cent on an annualised basis.
The data itself saw the bets of interest rate cuts in the US increase marginally, prompting a fall in US Treasury yields across the curve. Moreover, 5 Year US Breakevens, while ticking slightly higher overnight, point to US inflation remaining below the Fed’s “symmetrical” 2 per cent target rate.
4. ECB played second fiddle: Not to be outdone, the ECB met last night, too, and delivered approximately no surprises. Another rubber-stamping of the global monetary policy outlook, it seems. The ECB had already told the markets that it sees the need for a maintaining of its interest rate settings well into the future. The effect on Euro-zone rate expectations was practically the same as those in the US economy.
Tighter policy settings from the ECB before year end has been all-but priced out; with negative interest rate policy, as well as many of the ECB’s more exotic policy tools, apparently here to stay for the foreseeable future.
5. A nonplussed currency complex: As the race to the bottom in global interest rates resumed, currency markets appeared to have a little trouble working out what it all means. The US Dollar was the primary laggard in the G4 currency-complex, as the Fed seemingly won this round of Who can be the biggest dove?
The Euro was up slightly against the USD; however, it was down against most its major crosses. The Yen climbed, but not as anti-risk trade. As it relates to the AUD, it climbed higher in the 0.7100 handle, as the yield differential between the US and Australian government bonds narrowed.
6. A down start for the ASX, following a flat day: For what was a generally positive, albeit lukewarm lead from Wall Street overnight, SPI Futures are pointing to an 11-point drop for the ASX200 at today’s open. Trade was as flat as a tack yesterday, lifted only by a bounce in bank shares, partially (and arguably) due to a component in yesterday’s consumer sentiment data that suggested a shift in confidence towards the housing market.
Otherwise, a stall in the astronomical rise in iron prices, and a pull back in oil prices, weighed somewhat on the market – though that dynamic may be due to change judging by last night’s commodity price action.
7. A clear-cut lead hard to find: Today’s trade on the ASX may well be judged in large part on how the market reacts to the prospect of an announced Federal election date. SPI Futures fell into that market’s close, suggesting that the story may hold some weight.
Otherwise, in the Asian session today, Chinese CPI data is the key release for market participants and will again be judged on what it says about China’s consumer demand, and the prospects for further fiscal and monetary intervention by policy makers. Thematically, cross-market moves suggest that there exists a present appetite for growth and risk, even if that comes without remarkable conviction.
8. Market watch:
SPI futures down 11 points or 0.2 per cent, to 6197 at 7am AEST.
- AUD up slightly to 71.7 US cents
- On Wall St: Dow +0.03%, S&P 500 +0.4%, Nasdaq +0.7%
- In Europe: Stoxx 50 +0.2%, FTSE -0.05%, CAC +0.3%, DAX +0.5%
- Spot gold +0.3% to $US1308.18 an ounce at 2:15pm in New York
- Brent crude +1.6% to $US71.76 a barrel
- US oil +0.9% to $US64.53
- Iron ore -0.3% at $US94.61 a tonne
- LME aluminium +0.4% to $US1878 a tonne
- LME copper +0.2% to $US6487 per tonne
- 2-year yield: US 2.32%, Australia 1.48%
- 5-year yield: US 2.28%, Australia 1.5%
- 10-year yield: US 2.48%, Australia 1.87%, Germany -0.03%
This column was produced in commercial partnership
between The Sydney Morning Herald, The Age and IG