The US Federal Reserve may have signalled the rising chance of rate rises in 2022 and certainly in 2023, but for Australian markets the big news overnight Wednesday was the big rebound in commodity prices, led by a near 17% surge in the price of benchmark 62% Fe fines from the Pilbara.
Helping change sentiment was news that the stricken Chinese property group, Evergrande had found enough cash to make an interest payment on a domestic debt today, but was still not expected to be able to pay a much larger amount on foreign US debt, which would then be rolled over for another 30 days of speculation about its future.
The rebound in commodity prices and the news of the Evergrande payment (it will have to confirm that payment today for the upbeat attitude to be maintained) overshadowed the Fed’s statement and new forecasts showing expectations of rate rises next year and in 2023.
ASX futures had the market up a modest 14 points in overnight trading (the index had been up double that earlier) ahead of the resumption of trading here this morning.
Wall Street ended solidly with gains for the Dow, S&P 500 and Nasdaq of around 1% as US investors took the Fed statement and changes in their stride and forgot Monday’s fears about Evergrande.
Locally watch for the prices of BHP, Rio, Fortescue Metals and a host of energy companies to respond positively to the iron ore and copper price rises as well as the higher oil prices.
The ASX 200 ended 23 points higher on Wednesday but was up by more than 60 points at one stage.
Evergrande’s domestic payment and expected rollover of the missed foreign payment into the grace period will give the troubled company more time to raise cash or convince someone to save it.
China’s central bank helped settle nerves by upping its cash injections into money markets to $US18 billion on Wednesday and left key interest rates unmoved.
That saw Asian markets steady with the Hang Seng in Hong Kong not trading because of a holiday and Chinese markets returned from their holidays and ended with a a small rise of 0.40% for Shanghai.
That in turn fed into a massive recovery in iron ore prices with the 62% Fe fines product from the Pilbara rising $US15.76 or 16.8% a tonne to bounce back above the $US100 a tonne level and close at $US108.70.
That was the largest percentage fall of the traded types – 58% Fe fines were up 12.2% to $US76.25 and the higher quality 65% FE fines from Brazil gained 11.4% to $US130.90.
The rises were the steepest in years and the greater confidence popped up in base metals with London copper jumping along with tin and nickel.
Copper closed Wednesday at $US9,286 a tonne, up 3.5% increase from Tuesday when it had fallen to $US8,810 per tonne its lowest price since August 19.
That was triggered by a wave of selling across the LME heightened by fears of the collapse of property developer Evergrande.
Three-month tin had the second-biggest spurt on the LME on Wednesday, up 3.4% to $US34,997 a tonne from Tuesday’s $US33,820 a tonne end.
US oil futures settled up 2.5% at more than $US72 a barrel on news of a seventh straight week of falling US oil stocks.
Comex copper followed London metal’s 3.5% jump back over $US9,000 a tonne with a 2.3% gain to $US4.22 a pound.
US Treasury bond yields eased a touch after the Fed statement to trade around 1.32% and the US dollar was mixed with the Aussie currency a touch firmer at 72.50 US cents.
The Fed’s post meeting statement also followed script with a clear sign the central bank is preparing to start withdrawing its enormous stimulus program by the end of 2021.
The Fed’s news left markets in good shape with gains in share prices on Wall Street and a fall in the price of gold which settled at $US1,778 an ounce and then slumped $US12 an ounce in electronic trading as the Fed statement came after settlement.
The metal was around $US1,766 an ounce in early Asian dealings.
The statement saw a significant change of wording with a key part now reading
“If progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted,” the policy-setting Federal Open Market Committee said.
Economists pointed out the new phrasing eliminated wording that had promised to assess progress over “coming meetings,” suggesting that a formal announcement of the slowdown could come as early as the central bank’s next gathering in November, as many in the markets expect it will.
Officials released new forecasts laying out their predictions for growth, inflation and interest rates through the end of 2024.
Those included the so-called “dot plot” — a set of anonymous individual estimates showing where each of the Fed’s 18 policymakers expect their interest rate to fall at the end of each year.
Half of the policymakers expected one or more interest rate increases by late 2022, with nine pencilling in a rate hike next year, up from seven in the June projections.
This was the first time the Fed has released 2024 projections, and officials expected rates to stand at 1.8% at the end of that year from 0% to 0.10% at the moment.
In his media briefing after the statement and meeting, chair Jay Powell said the Fed is getting closer to achieving its goals on “substantial further progress” on inflation and employment.
“For inflation, we appear to have achieved more than significant progress, substantial further progress. That part of the test is achieved in my view and the view of many others,” he said.
“My own view is the test for substantial further progress on employment is all but met,” Powell added.
