Markets took the US fed rate rise in their stride – and there was a relief rally of sorts in the wake of the decision being announced 2 hours before the end of trading on Wall Street.
Our market will start with a solid near 40 point gain on the ASX 200, after being marginally in the red just before the announcement at 6am Sydney time.
The Aussie dollar also steadied after the decision was announced and traded around 72.20. The US dollar was steady (after a little blip) against other major currencies.
Gold had risen above $US1,075 an ounce on Comex, but eased a little in after hours trading. Copper and silver also rose.
Oil prices however weakened before the announcement and maintained the losses afterwards to trading down 4.5% in early Asian dealings at $US35.66 a barrel, and its heading lower.
In fact the renewed slide will grab the attention of investors as the day goes on and if the price dips under$US35 a barrel, as it could very well do.
Wall Street rose strongly after the decision with the Dow up well over 200 points, or close to 1.3%, the S&P 500 up 1.45% as well and the Nasdaq up 1.5%.
And why was it a relief rally – well after months of speculation, many in the markets just wanted a rate rise to happen – they were sick of the constant talk.
The Financial Times reported a typical comment from Wall Street this morning saying “many welcomed the clarity that it finally brought."
“At last,” said Kathy Jones, a strategist at Schwab. “I am so glad this is out of the way. We can obsess about something else.”
The increase confirms the strength of the US economic recovery with jobs growth solid, unemployment at 5%, consumer spending growth also solid, but exports weak.
Lower oil prices continue to be a benefit and a hindrance – and their impact on the US oil sector next year could be a growing negative.
But watch inflation and the Fed – it is now the key indicator for the central bank, judging by Ms Yellen’s comments at her media conference.
While inflation has been under the Fed’s 2% target for the past three years, the Fed and Ms Yellen made it clear this morning that they are now “reasonably confident” that it will rise back to the objective (2%) over the medium term following a considerable improvement in the labour market this year.
In its statement, the Fed said its policy stance would remain “accommodative” even after the increase. “The Committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will continue to expand at a moderate pace and labour market indicators will continue to strengthen,” the statement added.
That’s what markets will hang on to and judge the Fed’s coming decisions by.
