Downbeat FOMC Dampens Markets
Does the market come to Fed, or the Fed to the market? The difference between market pricing of 2016 US rate rises and the Fed’s dot-expressed assumptions edged closer this morning after a dovish statement from the FOMC. Despite the potential for a smoother and slower path to higher rate levels shares fell as investors and traders responded to a perception of deeper concern about the international outlook from the Fed board. In more conventional responses, bond yields and the USD fell and gold rose.
Doves are citing the re-insertion of:
“The Committee is closely monitoring global economic and financial developments…”
As a key signal, along with the removal of “balanced risk”. The Fed once again emphasised its accommodative stance and its view of strengthening growth and benign inflation. The market reaction suggests investors are not concerned about rising rates. Rather, the Fed’s apparently heightened concerns confirmed fears of a deteriorating global outlook, pushing investors to sell.
In contrast to shares, industrial commodities traded in positive territory, albeit off their highs. Oil is trading 2% higher, and copper is up 1%. The fact that gold is also higher should remove the resources drag from Australian trading today. A more positive outlook for the AUD/USD pair may see international interest support current share prices.
Frequently Asked Questions about this Article…
The FOMC's dovish statement led to a fall in shares as investors perceived deeper concerns about the international outlook. Bond yields and the USD also fell, while gold prices rose.
The market reacted negatively because investors were more concerned about the Fed's heightened worries over a deteriorating global outlook, rather than the potential for rising rates.
Industrial commodities traded in positive territory, with oil trading 2% higher and copper up 1%, despite the overall negative market sentiment.
The rise in gold prices suggests that investors are seeking safe-haven assets amid concerns about the global economic outlook.
A more positive outlook for the AUD/USD pair may emerge, potentially attracting international interest and supporting current share prices.
The FOMC re-inserted the phrase 'The Committee is closely monitoring global economic and financial developments' and removed 'balanced risk', signaling heightened concern over global conditions.
Investors are not worried about rising rates because the Fed emphasized its accommodative stance and the potential for a smoother path to higher rate levels.
The removal of 'balanced risk' implies that the Fed sees more uncertainty and potential downside in the global economic outlook, which contributed to the negative market reaction.
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