Fed Speakers Derail Dollar
Clear messaging from US Federal Reserve board members that US interest rates will rise faster than current market expectations has forced the US dollar higher. Shares fell in a re-pricing of interest rate risk. Gold slumped and industrial commodities tanked after a higher than expected weekly build in oil stocks. This means all arrows for Australian shares are pointing downward today.
In contrast, European shares were flat, despite further pressure on the British pound after a poll showed a majority of Britons favour departure from Europe.
Local share trading may start in line with futures markets, dropping around 35 points at the open. However, trading may be dominated by the fallout from the monthly stock option expiry that occurred overnight. Stocks to watch today are majors.
CBA dominates the list with $357 million dollars’ worth of shares exchanged as a result of option exercises. BHP ($249 million), Rio ($171m), and NAB ($163m) are all in traders’ sights. Macquarie Group and Resmed are unusually high on the option exercise list, which may see exaggerated moves and volumes today.
Frequently Asked Questions about this Article…
When the US Federal Reserve signals that interest rates will rise faster than expected, it often leads to a stronger US dollar. This is because higher interest rates can attract more foreign investment, increasing demand for the dollar.
Shares fell because the announcement of faster-than-expected interest rate hikes led to a re-pricing of interest rate risk. Investors adjusted their portfolios in anticipation of higher borrowing costs, which can negatively impact company profits.
The announcement caused gold prices to slump and industrial commodities to tank. This was partly due to a higher-than-expected weekly build in oil stocks, which added downward pressure on commodity prices.
Australian shares are expected to face downward pressure, as indicated by futures markets predicting a drop of around 35 points at the open. The re-pricing of interest rate risk in the US can have a ripple effect on global markets, including Australia.
Stock option expiry can lead to increased trading volumes and volatility as investors exercise their options. This can dominate trading activity, as seen with major companies like CBA, BHP, Rio, and NAB experiencing significant share exchanges.
These companies are in focus due to large volumes of shares exchanged as a result of option exercises. For example, CBA saw $357 million worth of shares traded, making it a key stock to watch.
Macquarie Group and Resmed are experiencing unusually high levels of option exercises, which may lead to exaggerated moves and increased trading volumes today.
European shares remained flat despite the US Federal Reserve's announcement and additional pressure on the British pound. This suggests that European markets may be more resilient or influenced by different factors.
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