From Greg McKenna at GlobalFX and Lighthouse Securities, here’s a quick guide to what’s on the minds of Australian traders heading into the day.
– The FOMC delivered a beautiful set of minutes which were very clear. The Taper is coming but because growth is not spectacular, rates are going to be very low for a very long time still.
– Key to the market reactions below though is the following: “…almost all participants confirmed that they were broadly comfortable with the characterization of the contingent outlook for asset purchases that was presented in the June postmeeting press conference and in the July monetary policy testimony”.
– But stocks didn’t like it one bit with falls from the instant the minutes hit cyberspace and no recovery in site. At the close the Dow was down 105 points or 0.70%, the Nasdaq fell 0.38% and the S&P 500 dropped 9 points to 1643 for a fall of 0.57%. In Europe, stocks went into the minutes announcement with the expectation of a US sell-off with the FTSE down 0.97%, DAX down 0.18%, the CAC fell 0.35%. Stocks in Milan and Madrid slipped 0.72% and 0.48% respectively.
– Bonds didn’t like it either with US 10′s leaping to a close of 2.90%, which will be worrying the Fed but what can they do about it if they are going to taper. Bunds and Gilts were also both 3 points higher closing at 1.85% and 2.71%. None of these rates are terrible per se but the trend and capital losses are huge.
– Global FX markets weren’t immune either and when the minutes were released Euro (1.3355), Yen (USDJPY, 97.66) and GBP (1.5661) all came under selling pressure as the US dollar was favoured. While these pairs have largely recovered, the Aussie (0.8977) and emerging market currencies such as the Brazilian Real remain under pressure.
– On Commodity markets, Dr Copper is a bit concerned, falling 3 cents to a still pretty good $3.33 lb for a loss of 0.84% on the day. Gold did well – all things considered – for the US dollar, but as a genuinely liquid store of wealth in a tumultuous world, its relative strength is understandable. It sits at $1355 oz this morning. Our friends the Ags were up to their old tricks as well with corn up 2.84%, soybeans 1.81% higher while wheat lagged, up just 0.75%.
– In overnight data and supporting taper fears, existing home sales in the US were up 6.5% month on month against expectations of a rise of just 1.5%
– It is a decent data day over the next 24 hours with the release of Australian leading index, HSBC Manufacturing PMI, before a raft of European versions of same as well as the US version and jobless claims and Kansas Fed index. Don’t forget also the annual Central Banker Confab at Jackson Hole kicks off as well.