Good morning. Here’s what you need to know.
– The Fed changed its language by dropping the “considerable time” phrase from its statement replacing it with: “Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy.” That has ignited a pretty solid rally in stocks, with the Dow up close to 300 points but currency traders are taking a very different view after Fed chair Janet Yellen said in the press conference that “patient” refers to the next “couple” of meetings and after that, rate hikes are live again.
– What’s different in the reactions of these two markets is that Yellen has signaled that rates in the US are going higher – hence US dollar strength – but that they are still data dependent and not rushing. So stocks can rally too.
– The longer Yellen spoke though, the more it sounded like she knows rates will be jacked up in 2015. She highlighted the market should be less focused on when the Fed starts it normalisation of rates and pay more attention to the magnitude of interest rate normalisation. Which means that the dot point chart of FOMC member expectations on rates becomes more important. The key here is that most members believe rates will be above 2% in 2016 – still super-low but much higher than now and much higher than where Japanese and EU rates are likely to be.
– So this volatility we’ve seen in currencies, stocks and crude oil (which spiked and fell back again overnight) seems set to continue toward years’ end as markets thin out, especially now that the FOMC meeting is out of the way and the market knows rates in the US are on the way up in 2015.
– So with 10 minutes to go before the close and after a weak CPI today which printed -0.3% for November after crude’s recent fall, US stock markets are up strongly but off their highs.
- Dow Jones up 293 points to 17,364
- Nasdaq up 2.16% to 4,647
- S&P 500 up 41 points or 2.09% to 2,014
– European Markets bounced strongly from their lows once they saw that US markets were doing well when they opened and while the overall performance was mixed on the day across the region, the moves in the US will embolden traders further tonight.
Anyway, at the close.
- London(FTSE 100) up 0.07% to 6,336
- Frankfurt (DAX) down 0.21% to 9,544
- Paris (CAC) up 0.46% to 4,12
- Milan (FTSEMIB) up 0.54% to 18,569
- Madrid (IBEX) up 0.32% to 10,050
– Locally on the ASX, SPI 200 futures contract traders have taken prices up 49 points to 5,167 as a precursor to what looks like a solid day’s trade when the physical market opens.
– In Asia yesterday, the bulls roared again in Shanghai where the SHCOMP is now well and truly back through 3000. This morning’s Fed move will help the region today.
At the close yesterday:
- Tokyo (Nikkei Average) up 0.39% to 16,820
- Hong Kong (Hang Seng Index) down 0.37%
- Shanghai (Shanghai Composite Index) up 1.31% to 3,061
– On bonds, the Fed’s move saw some extreme volatility at some parts of the curve and at the close the 10s are at 2.14%. In the UK, 10s finished at 1.78% and German Bunds are at 0.60%.
– Currencies have had a wild and crazy last 24 hours. The Aussie crashed to 0.8104 early this morning, having rallied back above 82 cents post-FOMC. It’s at 0.8139 at the moment. USDJPY is back at 118.43 and the euro is down at 1.2366.
– On commodities, trade was equally fraught. Crude has ended higher but well off its highs at $56.57 a barrel, up 1%. Gold is down at $1,188 an ounce, having failed to ignite on any chance of a rally in the past week or two, and copper is at $3.8745. On the Ags, wheat rallied 4%, corn half a per cent, while soy beans rose a similar amount. March iron ore is at $66.95 a tonne and Newcastle coal for the same delivery month is at $62.40.
On the data front today, there is nothing of note out in Australia, although a few might check the RBA FX transaction report to see if they have been intervening by selling Aussie – unlikely as it may be. Ifo is out in Germany tonight, retail sales in the UK and then some partial indicators such as the Markit Services and Composite flash PMIs in the US and the Philly Fed survey.