Gold reversed course and rose strong, Wall Street bounced strongly and the Australian dollar leapt back over 75 US cents after the US Federal Reserve sat on its key interest rate for a second month and cut the number of possible interest rate rises over the remainder of this year from four to two.
The median of policy makers’ updated quarterly projections in the so-called ‘dot plot’ saw the Federal Funds Rate at 0.875% at the end of 2016, implying two quarter-point increases this year, down from four forecast in December.
Comex gold futures leapt more than $US30 to $US1,260 an ounce, US oil futures built on earlier gains as the US dollar weakened to be up more than 5% on the day.
Copper jumped more than 1% to $US2.26 a pound – its most recent low was $US1.94 a pound three months ago.
On Wall Street, the S&P 500 and the Dow both closed at new 2016 highs in the wake of the Fed statement, but the closing levels were lower than the day’s highs reached in the last two hours of trading.
The S&P closed 12 points, or 0.6%, higher at 2,027, the Dow added 78 points, or 0.5%, to 17,328, while the Nasdaq Composite ended up 35 points, or 0.8% at 4,763.
That saw the Aussie dollar rise more than a cent in the wake of the Fed statement and press conference by chair, Janet Yellen. Markets and economists now say the next rate rise will be in September, which means that if we are to get two rate increases this year, as thew Fed suggests, then the second will have to occur in December.
Two rate rises in such quick succession is really a rate increase of half a per cent, which is pretty a big ask, especially given the mixed outlook globally. Therefore there is likely to be only one rate rise in the US this year.
The overnight ASX 200 futures market reversed from a small loss to a 30 plus point gain for trading starting at 10 am.
The Fed statement and generally ‘dovish’ outlook for US interest rates also saw global market indexes rise, along with market futures – pointing to gains when trading resumes in Asia and Europe later this morning after most sold off yesterday.
