No rate rise is expected from this week’s two day meeting of the US Federal Reserve – the second last for the year – but after October’s surge in US jobs (250,000) and wages (to an annual rate of 3.1%) and no change in the jobless rate (3.7% – a 49 year low).
But the post-meeting statement on Thursday morning, Sydney time, will make it clear that a rate rise is certain from the Fed in December and at least three more in 2019.
The Fed last lifted rates in September – the third increase this year and despite the moans from President Trump, the increase has not damaged the economy, even though shares and other financial markets had a miserable October.
That was more down to worries, created by Trump about his trade war with China (and other countries) and arguments with Turkey, Saudi Arabia and especially Iran with the US oil sanctions due to come into full force tonight, our time.
Rather than send oil prices soaring, there was a push higher, and an equally fast fall and US prices are down 17% from their most recent highs, while Brent is down by well over 10%.
On top of this, there has been the mid-term election campaigning with Trump focusing in immigration, Democrats and other side issues rather than the booming economy and jobs market – which were underlined in Friday’s October jobs report.
US bond yields anticipated the coming rate rise on Friday after the October jobs report was issued with the yield on the key 10-year Treasury bond rising 8 basis points — the most in a month — to 3.224% – within sight of the 3.263% hit in early October – which was a three and a half year high.
The yield on the more policy sensitive two-year bond rose more than 6 bps to 2.911% — the highest since mid-2008. Longer-term borrowing costs also surged, with the yield on the 30-year Treasury, which is of great importance to mortgage-holders, up 7.5 bps to its highest level since July 2014.
The US homebuilding sector is weakening under the pressure from higher mortgage rates and easing demand – cost increases, from tariffs (for copper, steel, and other products imported) and rising wage costs are eating into demand for new and existing houses.
In addition to rising borrowing costs, an appetite for stocks was further sapped by renewed concerns about the outlook for trade relations between the US and China and Wall Street fell on Friday, but was higher for the week.
But despite the sell-off in October globally, the month finished strongly and November started in a similar way. That saw Eurozone shares gain 3% over the week, Japanese shares rise 5%, Chinese shares up 3.7% (thanks to a lot of official sentiment swaying) and Australian shares add 3.2%.
The S&P 500 finished 0.6% lower on Friday. But three consecutive days of gains from Tuesday to Thursday were enough to push the index up 2.4% over the week – its best weekly performance since early March.
It is now up 1.8% for 2018 after dipping into negative territory twice in October and briefly into a correction (a 10% fall from the most recent high) last Monday.
The three-day winning streak from Tuesday to Thursday was the first time since late June 2016 that the benchmark had risen by 1% or more for three consecutive sessions. Friday’s fall came at the end of a positive global session with markets in Europe and Asia making solid gains.
The Dow lost 0.4% on Friday, with Apple losing more than 6% and dragging the index lower thanks to the weak outlook for the Christmas selling season and the silly decision to no longer release unit sales figures in quarterly reports. But the Dow gained 2.4% which was the best performance since early June.
The tech-heavy Nasdaq Composite fell 1% with technology stocks — which drove October’s sell-off — sliding again in the wake of the Apple quarterly report and weak outlook. Still, Nasdaq notched up the strongest weekly gain of the three – 2.7%.
The dollar trimmed its gains on Friday but still rose 0.1% for the week for its first three-week streak since August.
