Commodities lead ahead of Fed
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.
Frequently Asked Questions about this Article…
Recent weakness in industrial commodities led to a significant drop in European share prices. However, a rally in oil prices during the US session helped to turn market sentiment around.
There is increasing caution in the market ahead of the Fed's decision, with a 75% probability of a rate rise this week according to US futures markets. This cautious sentiment is contributing to potential volatility in the coming weeks.
US futures markets are currently indicating the likelihood of two interest rate rises by the end of 2016. However, the Fed board members' 'dot plot' chart suggests there could be four rises, highlighting a disparity in expectations.
Australian shares experienced heavy index selling, continuing a trend from the previous week. This selling pressure is likely influenced by a lower Australian dollar and the actions of 'top down' fund managers.
A combination of taut nerves, thin markets, and the upcoming Fed decision could lead to an unseasonal increase in market volatility over the next few weeks.
A rally in oil prices during the US session helped to improve market sentiment, allowing shares to regain losses and finish in the green.
House price and motor vehicle sales data could influence Australian trading, especially with the expiry of the December index futures contract approaching.
Although markets are prepared for a rate rise, the disparity between futures market expectations and the Fed board members' forecasts could lead to a strong reaction in trading.
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