No joy for the markets from the release of two key data releases in the US overnight.
In fact Wall Street ended trading on a hesitant and uncertain note – just as it was before the first estimate of US second quarter economic growth turned out to be better than expected, and then the Fed’s post meeting statement was slightly more confident, but nothing more.
Now is the July jobs report on Friday night, our time, looms for the markets to contend with.
It’s likely to again be solid, with over 200,000 new jobs created and the unemployment rate down to 6% and will leave the market no clearer about the future direction of interest rates.
But before that, the market will have to deal with Argentina and what Standard & Poor’s this morning called "a selective default".
The market bounced around before closing – the Dow fell by 0.2%, the S&P 500 was steady , but the Nasdaq ended with a gain of 0.4%.
Gold fell under $US1,300 an ounce and US crude oil futures dipped back under $US100 a barrel.
US bond yields ended up 9 points by the close of trading for the Ten year security which finished on a yield of 2.56%. Yields on two and three year bonds hit new three year highs as well.
The US dollar rose to seven month highs against some of its major peers, sending the Aussie dollar down more than half a cent to 93.33 US cents this morning.
The futures market gave the local market a small gain to start trading in Australia.
The first estimate of US second quarter GDP growth saw the economy grow at an annual rate of 4%, up from a revised fall of 2.1% (previously a fall of 2.9%). That was also better than the market estimate of 3.1%.
While the headline figure stood out, economists said the composition of the quarter’s growth depended heavily on a 1.7% rise in inventories, as companies rebuilt their stocks from being run down in the freezing first quarter when they fell (helping drag the economy into negative growth).
The GDP figure will likely change in second estimate in a month’s time.
US growth rebounds after frozen Q1
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And then nearly six hours later the Fed said in its post meeting statement that the economy is getting better and that risks of deflation are disappearing, but it did not give any sign of hardening its stance on when interest rates will start rising.
In fact the Fed repeated previous comments that it expects the lift off to come a “considerable time” after the end of its bond-buying program.
This drew a dissent from the leading hawk on the committee, Charles Plosser of the Philadelphia Fed. Hawks on the Fed wanted the central bank to begin to normalise monetary policy.
As expected, the central bank voted to continue to slowly trim the size of its bond-buying program, with another $US10 billion cut to $US25 billion a month.
Fed Chairwoman Janet Yellen has said the program is likely to end in October.
The bank’s statement said US labour market conditions had improved, but qualified that statement saying "a range of labor market indicators suggests that there remains significant underutilization of labor resources somewhat closer to the Fed committee’s longer-run objective."
The central bank took out a warning about low inflation, and replaced it with a statement "the likelihood of inflation running persistently below 2% has diminished somewhat"and that inflation "has moved somewhat closer to the Fed’s longer-run objective." (which is 2%).
And well after trading closed on Wall Street this morning, S&P cut the credit rating on Argentina’s foreign currency bonds to "selective default" due to nonpayment.
The ratings form said the downgrade will stay in place until Argentina resolves nonpayment issues.
Argentina remains in negotiations today, our time in an attempt to reach a deal that would allow it to make payments on its bonds.
S&P said that in its opinion Argentina has failed to make a $US539 million payment due on its discount bonds due in 2033.
The payment was originally due on June 30, and was subject to a 30-day grace period, which expires at midnight Wednesday, New York Time (2 pm today, Sydney time).
There’s a deadlock between Argentina and a group of hedge who were awarded $US1.33 billion by a US District Court judge in New York.
Argentina has exhausted all legal options to avoid payment, which would in turn trigger a series of payments on other discounted bonds.
