To the scoreboard:
Dow: 22,412.59 +41.79 (+0.19%)
S&P 500: 2,508.24 +1.59 (+0.06%)
AUD/USD: 0.8033 +0.0023 (+0.29)%
ASX200 SPI futures (December contracts): 5,702 (+3)
Iron ore benchmark 62% fines: $US69.65/t (+1.2%)
1. Fed holds with a hawkish lean: The US Federal Reserve kept rates on hold and announced plans for the gradual reduction of its balance sheet starting next month. Full statement is here. In the latest “dot plot” of future interest rate moves, the Fed is sticking to its forecast of a rate hike in December and three more next year although inflation expectations fell slightly. The US dollar and US government bond yields both rose, while stocks were little-changed.
2. Currency markets more dovish: Although the USD climbed, currency moves were relatively constrained with markets waiting for more positive data to back up the Fed’s optimistic growth forecasts. Among the greenback’s major trading pairs, the USD pushed above 112 Japanese yen for the first time since July. The euro is back below $US1.19 and the pound is off from its earlier high above $US1.36, after it spiked following a bumper retail sales print for August.
3. Wild night for the Aussie: The AUD remains in demand amid a relatively positive global economic backdrop. It caught a solid bid all the way above US81 cents last night, then a heavy sell-off drove it back below US80 cents before it bounced back. Here’s the overnight moves:
4. Bonds sold off again: Bond yields — which rise when bonds are sold — climbed in the wake of the Fed’s announcement. At a rate of 1.43%, yields on shorter term US 2-year government bonds are now at their highest level since 2008. Yields on benchmark US 10-years edged higher, while Australian 10-year bond yields rose another 5 basis points overnight and have almost reached 2.9% for the first time since March.
5. Stock markets stay buoyant: US stocks shrugged off the slightly more hawkish Fed commentary to edge higher while UK and European markets were flat. Italian stocks have led gains in Europe this year, but Deutsche Bank analysts think the country poses a serious economic risk. Aussie stocks remain stuck in the lower half of their recent range, with no obvious catalyst to push the market higher.
6. Data today: Domestically, RBA governor Philip Lowe gives a speech in Perth with the intriguing title of “The Next Chapter”. There’s another two key data points in the Asia-Pacific timezone, with New Zealand set to report Q2 GDP figures while the Bank of Japan will also make its interest rate announcement.
Bonus item: This is worth a read — the transcript of Business Insider’s interview the Ray Dalio, the founder of the world’s biggest hedge fund.
Enjoy your day, I’m on Twitter @Mr_SamJacobs.