Morning. Here’s what traders will be talking about today.
First, the scoreboard (8:00am AEDT):
Dow: 20,950 +113 (+0.54%)
S&P 500: 2,384 +19 (+0.79%)
SPI 200 Futures – March (20 minute delay): 5,818 +36 (+0.62%)
AUDUSD: 0.7704 +0.0146 (+1.93%)
1. Fed hikes, markets are up: As expected, the US Federal Reserve raised interest rates by 25 basis points. More importantly, the Fed forecast “moderate growth” with 2 more rate hikes in 2017 (not 3) and markets reacted positively to the Fed’s slightly more dovish tone. Treasuries surged and the Dow was up 0.5% as the Fed maintained its 2017 growth projection for the US economy around 2%. The latest dot plot released by the Fed captures the median fund’s rate forecast at between 1.25% and 1.5%. You can find it here.
2. Aussie dollar rockets higher: The USD index was down by more than 1% as currency markets were priced for a more hawkish Fed statement. In addition to rising almost 2% against the greenback, the AUD rose by more than 0.5% against each of the yen, euro and pound. Based on data compiled for previous market reactions to recent Fed interest rate announcements, the impact of any repricing for the AUD following the US Fed announcement tends to hold throughout the following month. Consequently the AUD is expected to trade in a higher range in the near-term. Westpac analysts also think the Aussie dollar will outperform the euro over the next few weeks.
3. Data today: In Australia, the ABS releases labour force data at 11:30am AEDT with the unemployment rate forecast to come in at 5.7%. Japan’s central bank also makes its interest rate announcement at 2pm AEDT with no changes expected. Eurozone CPI data comes out at 9pm AEDT and the consensus forecast is for 0.9% annual growth.
4. Oil (finally) climbs: Oil prices posted their first gain in more than a week overnight, following a surprise reduction in US inventories. WTI crude was up 2.7% as oil was also helped by a drop in the USD following the Fed interest rate announcement. The US Energy Information Administration (EIA) reported a weekly drop in crude stock of 237,000 barrels, in stark contrast to a forecast increase of 3.7 million barrels. The International Energy Agency (IEA) said that the industry needs time to digest increased drilling by OPEC countries between September and November 2016, before an agreement was reached late last year to cut supply. Combined with a rise in imports and shale oil production in the US, the price of oil has dropped more than 10% in the past week. Once the excess supply works its way through the system the oil market will re-balance, the IEA said.
5. Iron ore is on the charge: Following a surge in the iron ore futures market, the spot price for benchmark 62% fines followed suit and rose by 3.2% to close at over $90 a tonne. Lower grade 58% fines also climbed by more than 3%. The decision by the Dalian Commodities Exchange to cut trading fees by 90% appears to have encouraged speculators to bid up prices further, with futures up another 2% at the close of the session.
6. Atlanta Fed more cautious: In line with the Fed’s mildly dovish tone at this morning’s announcement, the Atlanta Federal Reserve thinks the US economy is growing at its slowest pace in two years. According to the Atlanta Fed’s model, annualised GDP growth in the first quarter was revised down to 0.8% from 1.2% following the latest data on consumer prices and retail sales. Although the Atlanta Fed also reduced its consumer spending forecasts, data to the end of February shows that yearly consumer spending in the US rose by 2.7% – the highest level in five years – which suggests that the Fed’s inflation target of 2% (currently 1.7%) is on track.