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.