Watch for a big pop in the ASX 200 this morning after the US Fed meeting changed its outlook on interest rates to bring forward a rise into mid-2015.
The ASX share price index was up 80 points at 8 am Sydney time after Wall Street jumped sharply in the 105 minutes of trading after the Fed statement, revealing the change (which was not unexpected) was released at 6.15 am.
The market reaction means investors now think the prospect of a rise in US interest rates in 2015 is going to be positive for shares .
The US Federal Reserve gave its strongest indication yet that next year would see an end to the near zero rate regime which has been in place for six years this month.
In its post meeting statement issued in Washington at 6.15 am this morning, Sydney time, the Fed sent a strong signal that it expects to tighten monetary policy by the middle of 2015 as it dropped its forecast that it will keep low interest rates for a “considerable time”.
The Federal Open Market Committee said it can be “patient” in judging when to start raising rates, in new wording designed to reassure markets that rate rises are not about to happen.
The changes saw Wall Street rise solidly in the hour and three quarters of trading after the statement’s release. During that time Fed chair, Janet Yellen held a media conference and her comments added to the rising level of confidence.
The greenback rose, the Aussie fell, oil steadied and gold eased.
Gone were the fears about Russia, falling oil prices and dodgy loans to energy companies – instead, Wall Street surged in the final half hour of trading to the 8 am (Sydney) close.
And all it took was a few changes in the wording of the post Fed meeting statement and some confidence building comments at the media conference of the Fed chair .
The Dow, Nasdaq and S&P 500 added between 1.7% and 2.1% on the day.
The Fed qualified the statement a bit, saying that the “patient” language was “consistent” with its prior considerable time pledge. The post-meeting statement was upbeat, citing “solid” job gains in the US economy (as we saw with November’s huge new jobs total and steady jobless rate of 5.8%), while it didn’t seem worried about risks of low oil prices on inflation, saying that it still expects prices to rise gradually toward its 2% annual target.
But the Fed added language to the statement that they would “monitor inflation developments closely.” Only hours before the Fed statement, the US Consumer Price Index for November was issued showing a fall in headline inflation, and a small, 0.1% rise in core inflation in the month.
The Aussie dollar traded around 80.30 US cents at 8 am this morning after touching a low during the night of 82.07. It could slide under 82 cents later today or overnight.
ASX 200 futures had the market up more than 80 points, which will follow Wednesday’s surprise rise in Australia. That rise ended a string of six consecutive down days for the ASX.
Gold futures in New York fell $US5 to $US1,189 an ounce in after hours trading in Asia this morning while Ms Yellen’s media conference was happening.
US oil futures traded slightly higher around US56 a barrel, and Brent futures closed at $US60.70 a barrel, recovering from another weak start.
In Russia, the central bank and government took steps to support the weak rouble, which worked for the time being and relieving fears of a crisis erupting within days.
The euphoria generated by the Fed will mean the market should have a very solid day today – but there’s one note of caution which will probably be overshadowed – a new five year for spot iron ore prices.
The spot price for iron ore delivered to the port of Tianjin in northern China fell 0.3% to $US67.90 a tonne, from its previous close of $US68.10 a tonne. The close is below November’s trough of $US68 a tonne, which is the lowest level since June, 2009.
