A quick recap:
Stocks in the US rose strongly even though the Fed signalled a rate hike is on the table at the next meeting. Certainly the initial reaction was concern with stocks lower in the hour after the announcement but they came back strongly to finish on the highs of the day. Why that is the case when the market has languished for the last couple of days is hard to fathom. But perhaps it’s the change of language about the pace of personal and business investment from “modest” to an expansion at “solid rates” which has given the bulls the impetus to hit the buy button.
Of course, the fact that the low in the S&P 500 last night was again on the 200-day moving average would have also helped the bulls. Positive technicals and the Fed saying the economy is looking good won the day.
It’s a very different result to the one many might have expected. Indeed, just 24 hours ago the Mario Draghi/China stock market rally was looking vulnerable. This morning the S&P is up 24 points, more than 1%, the Dow is up close to 200 points and the Nasdaq is up around 1.3%
Europe was also higher last night and the ASX SPI200 futures are indicating a solid start to the day today, up 43 points to 5,349. Of course there is much to occupy traders’ minds locally, even without the Fed. After Dick Smith’s disastrous day yesterday, it will be interesting to see if the bargain hunters come in buying or whether the bears thump the stock lower again. Likewise after NAB’s forgettable earnings report and 2% fall yesterday, the ANZ is up with its report this morning.
On forex markets, the Fed’s suggestion that December is in play (see below in other news) saw the US dollar surge. That pushed the Aussie dollar down to 0.7077 but it’s back above 71 cents now. The Kiwi is also down back at 67 cents and AUDNZD is sitting around 1.06. The euro was hammered last night by the apparent divergent paths of the ECB and Fed. The single currency hit a low of 1.0894 before recovering a little to 1.0924ish. Sterling is down but only by around 0.2% while the Canadian dollar outperformed the Aussie and NZD given the massive rally in crude oil.
On crude, the move was remarkable, hard to fathom fundamentally. Here’s CommSec chief economist Craig James’s take:
World oil prices rose sharply on Wednesday following the weekly EIA inventory data came in better than rather bearish expectations. US crude stockpiles rose by 3.4 million barrels last week. But the focus was the 785,000 barrel decline at the Cushing, Oklahoma delivery hub for crude futures. Brent crude rose by US$2.24 to US$49.05 a barrel while US Nymex crude rose by US$2.81 or 6.5% to US$46.01 a barrel.
Iron ore is down again as well, copper dipped a smidge to $2.3480 a pound and gold has dropped back to $1,156.
On the data front today we get the import/export price index in Australia. In Japan, industrial production will be interesting and then tonight the big one in Europe is German unemployment. UK consumer credit and house prices are also out. In the US, it’s GDP and personal consumption and expenditure data.
The overnight scoreboard (7.31am AEDT):
- Dow Jones Industrials +1.13%
- Nasdaq Composite +1.3% to 5,095
- S&P 500 +1.18% to 2,090
- London (FTSE 100) +1.14% to 6,437
- Frankfurt (DAX) +1.31% to 10,8312
- Tokyo (Nikkei) +0.67% to 18,903
- Shanghai (composite) -1.72% to 3,375
- Hong Kong (Hang Seng) -0.8% to 22,956
- ASX Futures overnight (SPI December) +43 to 5,349
- AUDUSD: 0.7112
- EURUSD: 1.0922
- USDJPY: 120.98
- GBPUSD: 1.5267
- USDCAD: 1.3191
- Nymex Crude (front contract): $46.15
- Copper (US front contract): $2.3480
- Gold: $1,156
- Dalian Iron Ore (January): 357.5 (denominated in CNY)
- US 10 year bond rate: 2.09%
- Australian 10 year bond rate: 2.60%
– IF the Fed hikes rates at its next meeting in December, no one will be able to say they weren’t warned. In it’s statement this morning the Fed set out the preconditions for a move in rates, noting:
In determining whether it will be appropriate to raise the target range at its next meeting, the Committee will assess progress–both realised and expected–toward its objectives of maximum employment and 2 per cent inflation. This assessment will take into account a wide range of information, including measures of labour market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.
So we’ll all be data watching as usual. But it’s clear in the minutes, as highlighted above, with the characterisation of consumer and business spending as solid perhaps giving the best guide to where the Fed’s collective heads are at.
As the rally in stocks showed, it’s a masterful statement today.
Here’s Akin Oyedele’s note on 3 key things that the Fed changed.
– Words are powerful in markets. Especially when they come from a central bank. So while the reality is that markets up here are closing in on their highs for the year again and valuation might again start to look stretched, for the moment the bulls have it.
Here’s the latest daily chart of the S&P 500:
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Spot iron ore slipped below $50 per tonne yesterday and selling pressure has returned to Fortescue. This makes Monday’s $2.65 peak look pretty significant from a chart point of view, creating horizontal resistance at the early July peak.
The dashed line support line around $2.15 and the 40 week moving average might now be a level to watch. A move below this would be another sign of weakness.
Further weakness could cement a view that the Fortescue chart is developing a large, long term basing pattern. The bad news about that scenario is that it might involve a return to the previous lows around $1.50 or, even worse, the blue support line.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC