To the scoreboard:
Dow: 21,711.01 +97.58 (+0.45%)
S&P 500: 2,477.83 +0.77 (+0.03%)
AUD/USD: 0.8006 +0.0001 (+0.01%)
ASX200 SPI futures (Sept contracts): 5,717 (+12)
Iron ore benchmark 62% fines: $US70.43 (+1.37%)
1. 2-year high for the Aussie The AUD is trading above US80 cents this morning after the US Federal Reserve made a more dovish statement accompanying its decision to keep interest rates on hold. US Fed chair Janet Yellen focused on low inflation rather than strong employment, and said the Fed would look to withdraw stimulus “relatively soon” (full statement is here). The USD lost ground against all the major currencies, with some analysts arguing that the Fed is now the US dollar’s biggest problem.
2. Lowe plays a balancing act: USD weakness gave the Aussie dollar a boost after it dipped slightly below US79 cents yesterday. That was after a measured speech from RBA Governor Philip Lowe, following quarterly CPI data where core inflation growth matched forecasts. Lowe said interest rates are on hold for the foreseeable future. He noted housing risks but also said that recent strength in employment would allow the RBA to stay patient in its growth forecasts. Which brings me to this cracking chart from AxiTrader’s Greg McKenna, which shows the relationship (plotted inversely) between AUD/USD and the Australian unemployment rate:
3. Bonds react to a more dovish Fed: Bonds had a small rally in the wake of the Fed’s announcement, with benchmark US 10-year notes dipping back below 2.3%. Although the Fed didn’t specify when it will start to taper its asset purchases, the market expectation is still for that to commence in September. As for the next interest rate hike, the CME Fedwatch tool has the probability of a rate increase in December at 46.8%. That’s fallen from above 50% as markets assess the Fed’s recent stance on the US economy, which has taken on a more cautious tone.
4. “Here’s what keeps us up at night”: Speaking of bonds, the managing director of a $US650 billion fixed income fund has run through a list of the most worrying themes in global bond markets. Arvind Rajan, from fund manager PGIM Fixed Income, cited excessive tightening of monetary policy by global central as a key driver that could push economies back into recession. He also noted geo-political turmoil and speculated as to what type of unexpected or “exogenerous” risks could upset markets.
5. Stocks roll along: With the US Fed staying relatively benign in its outlook and earnings season continuing to produce strong results, US stocks ticked higher again overnight. Amid that positive backdrop, the VIX volatility index briefly dipped to 8.84 — its lowest level in history — before closing the day at 9.60. Stocks in the UK and Europe also climbed which points to a higher open for Asian markets this morning.
6. Commodities wrap: The resources and energy sectors on the ASX200 should stand to benefit from another night of gains in the major commodity markets. Iron ore benchmark 62% fines are back above $US70 a tonne. Oil moved further above $US50 a barrel, capping a 6% gain over the last three days as the weekly oil inventory report from the US government reported a reduction in stock of 7.2 million barrels. The weaker US dollar has helped gold move back above $US1,260 an ounce for the first time since mid-June.
Enjoy your Thursday, find me on Twitter @Mr_SamJacobs.