Australian investors will be greeted by good news this morning as iron ore prices leapt to their second two month high in three days.
But adding some uncertainty will be the latest minutes from the US Federal Reserve’s Open Markets Committee which while locking in a rate rise next month, cast doubt on the pace of rate increases for 2018.
That news saw the US dollar fall to a four week low against a basket of currencies of its major partners, while the Aussie dollar rose past 76 US cents to trade around 76.15 in early Asian dealings.
Adding to market tensions from the Fed minutes is the looming holiday today for Thanksgiving and then the half day session on Friday, meaning many investors have taken safe positions for the long break.
Metal Bulletin iron ore prices dropped on Tuesday from Monday’s finish at$US63.47, but then leapt more than 4% on Wednesday to hit their highest level since September 27.
Iron ore prices breached the $65-per-tonne level on Wednesday as Chinese steel and futures market made gains, despite the cuts to steel production now in force in northern and northeastern China.
The Metal Bulletin’s 62% Fe Iron Ore Index ended at $US65.17 a tonne cfr northern China, up by $US2.67 a tonne.
Shares in BHP (up 1.5% on the ASX yesterday) and Rio (up 1.1%) will rise again today after solid rises in London and the US overnight in the wave of the rise in the spot price.
The solid performances by the two giants and other miners helped the ASX rise 22 points yesterday.
The overnight futures market has the index showing a 7 point gain this morning at the opening.
Gold rose more than $US12 an ounce to just over $US1,298 an ounce while US oil futures were 2% higher on a drop in US oil stocks, helped by a weaker greenback late in the session.
The Fed minutes confirmed that a near-term interest rate increase next month is all but assured, but showed doubt over persistently low US inflation continues at the Fed, casting doubt on the pace of rate increases in 2018.
The minutes revealed a US central bank still struggling to get to grips with the implications of sub-2% inflation (The Fed’s preferred inflation measures have not topped the 2% target level for more than five and a half years and have been weaker this year than forecast).
The minutes show that many Fed policymakers warned inflation may remain below target for longer than they had expected.
A number of participants in the latest meeting of the Open Markets Committee said they were worried a fall in longer-term inflation expectations could make it harder to return inflation to target.
The Fed’s problems with inflation were highlighted this week by departing chair, Janet Yellen who in comments at a conference on Tuesday night, described the inflation shortfalls in 2017 as something of a “mystery.”
The persistently weak inflation figures come despite a fall in unemployment down to the lowest levels since the early 2000s, without any surge in wage costs. In fact wage growth slowed to an annual 2.4% in October from 2.8% in September. The weak inflation figures for the US come despite a rise in oil and petrol prices this year.
In fact the Fed’s dilemma is similar to ours with the big exception that the Reserve Bank isn’t lifting rates – in fact RBA Governor, Phil Lowe rued out any near term move in rates in a speech in Sydney this week. He expressed puzzlement why inflation has been weaker than expected this year, along with persistently weak wage growth.
