Further weakness in industrial commodities saw European share prices slashed, before a US session rally in oil turned market sentiment. Against a backdrop of increasing caution ahead of Thursday morning’s Fed decision, share regained losses of around 1% to finish in the green. This introduces the possibility of positive momentum spilling into Asia Pacific trade today.
A combination of taut nerves and thin markets may mean an unseasonal increase in market volatility over the coming weeks. US futures market are now inferring the probability of a rate rise this week is 75%, but the potential for a mismatch in expectations is high. The same futures markets are indicating just two rises between now and the end of 2016. The Fed board members’ “dot plot” chart indicates four rises in that time. Although markets are prepared for a rate rise, the disparity in forecasts may mean there is still a strong reaction in trading.
Heavy index selling hit Australian shares yesterday, continuing on from last week. A lower Australian dollar suggests physical selling may be running in parallel, but highly correlated sector performance suggests “top down” fund managers are dominating action.
House price and motor vehicle sales data could add a local flavour to trading ahead of the expiry of the December index futures contract tomorrow.