Now all the fuss about Turkey has died down, here’s your morning market update:
– The FOMC decision was largely a non-event overnight, although the Aussie came under a little pressure. Rather it’s more emerging market issues attracting attention as the surprising large hike in interest rates by Turkey yesterday calmed a few nerves in Asian trade. But it was business as usual overnight with markets realising that the Turkish economy can’t really cope with 12% interest rates. So Europe came under pressure with the FTSE down, which fed into a weak US opening with the three main indices all down more than 1% this morning.
– Looking specifically, the Fed taper of $10 billion was exactly what the transition to a new Fed Chairman in Janet Yellen needed. There was some conjecture yesterday that the Fed might only taper $5 billion but this would have been to play a weak hand and Bernanke’s last decision needed to be strong – either $10 billion or nothing. You can read the text of the announcement here.
– The impact of this decision was to knock stocks a little lower, but for the Dow and S&P at least, it is only back to the lows of the day as the intra-day specs hoping for no move were taken out of positions. At the close, the Dow is down 189 points or 1.18% to 15,739. The Nasdaq is off 1.15% while the S&P 500 is 19 lower for a fall of 1.03%, sitting at 1,774. Importantly, when I look at my charts, the futures are at 1,766 – just 6 points above an important break level.
– In Europe, the FTSE dropped to a 6-week low as Asia’s positivity around the Turkish rate hike proved ephemeral and the US dollar-Turkish lira rate headed back to where it was before the rate hike. It sits at 2.23 and is a classic own goal by the central bank not seen since the Bank of England lifted rates to stop George Soros in the early 1990’s.
– So at the close the FTSE was 0.43% lower, the DAX fell 0.74% and stocks in Milan were down 0.57%. Strangely, the CAC in Paris and the IBEX 35 in Madrid rose 0.30% and 0.17% respectively.
– Locally on the ASX Futures, the March SPI 200 contract is down 64 points to 5109 bid. On the bonds, the 3’s are up 9 points to 97.15 (2.85%) while the 10’s were also up 9.5 points to 96.045 (3.945%). This rally reflects improved prices in the US Treasury market where the 10’s rallied 7 points after the FOMC – as counter intuitive as that might be – to 2.69%.
– For those of us who have spent a lot of time in Currency markets, the reaction of the lira in returning to where it was pretty much before yesterday’s hike was as expected. A fall in the Aussie was likely, which is what occurred overnight after an aborted run to 0.8825 before falling 100 points to a low of 0.8725. The Aussie sits at 0.8729 this morning, down 0.52%.
– The other big mover was USDJPY, which continues to benefit from the emerging market ructions and the risk-off trade. USDJPY fell 0.85% to 102.07 this morning and trade below the low of 101.80 last night opens the way for a big move. The euro sits at 1.3658, while GBP is at 1.6560.
– On commodities, the fear has helped Gold rally back above resistance and it sits at $1267 this morning. Crude fell 0.18% to $97.23 Bbl while Dr Copper scarily fell again and now sits at $3.26. On the Ags, Corn was down 1.04%, Wheat lost 2.56% and Soybeans were 1.26% lower.
On the data front today, we get Australian import and export price indices as well as the next read on the HSBC Chinese PMI. Tonight we get unemployment in Germany as well as European confidence numbers. Jobless claims, pending home sales and consumption data are out tonight in the US.