Fischer's weekend comments set a soft tone

Early indications are that reaction to the weekend comments of Fed Vice Chairman Stanley Fischer will provide a nervous start to trading this morning. Mr. Fischer expressed his belief that inflation will move higher as the current forces holding it down dissipate. This line of thinking suggests that the Fed will look through short term inflation concerns and begin the process of a very gradual normalisation of interest rates this year.

After Fischer’s comments, the immediate focus for markets is now likely to be the somewhat second order issue of whether the first Fed rate hike will come in September or December. Friday’s jobs report and the extent of market volatility over the next couple of weeks may determine the answer.

Nervousness about the Fed has led to US futures dropping this morning suggesting that the Australian market could struggle to hold onto the small gains implied by the steady close to US markets on Friday. This came as a relief being the first relatively quiet trading session after seven days of large trading ranges and high volatility.

Energy stocks are likely to be a feature of today’s Australian session. Two very strong days in the oil market after two months of relentlessly lower prices will have shareholders in energy stock hoping for some ongoing relief. If the US oil price is able to consolidate above $40 for a while, some of the worst fears about near term energy company results will be relieved.

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