It's all about the Fed now
It’s all about the Fed now with opinion divided about whether it will announce an increase in US interest rates at 4am AEST on Friday. Last night’s US market moves appeared to be a logical response to the possibility that the Fed will begin the gradual process of lifting interest rates this week. Share markets rallied, reflecting solid growth in the US domestic economy and the potential for the Fed to increase certainty and reduce volatility by acting at the September meeting. Bonds, on the other hand were sold in with yields rising in response to the potential for a gradual increase in funding costs.
US retail sales figures point to solid growth in the US domestic economy. Consumer spending appears to be holding up well in the face of financial market volatility and the prospect of higher interest rates. The improved job market is lifting spending power which bodes well for GDP growth in the current quarter. While US industrial production was weaker than expected this is probably more a reflection of soft global demand and previously high inventory levels than of the domestic economy. Last night’s data is unlikely to dissuade the Fed from lifting rates at this meeting if it is of a mind to do so.
The solid lead from US suggests a positive day for the local market today, although the quarterly index futures expiry and associated adjustment of positions in the stock market introduces and element of uncertainty to the day’s trading.
Frequently Asked Questions about this Article…
The current focus of the US Federal Reserve is on whether to announce an increase in US interest rates, with a decision expected at 4am AEST on Friday.
US markets are reacting logically to the potential interest rate hike by the Fed, with share markets rallying due to solid growth in the US economy, while bonds are being sold off, leading to rising yields.
Despite the potential Fed rate hike, US consumer spending appears to be holding up well, supported by an improved job market that is boosting spending power.
The improved US job market is lifting spending power, which is positive for GDP growth in the current quarter, indicating solid economic growth.
US industrial production was weaker than expected, likely due to soft global demand and previously high inventory levels, rather than issues within the domestic economy.
The recent US economic data is unlikely to dissuade the Fed from lifting rates at this meeting if it is inclined to do so, as the data supports solid domestic economic growth.
The solid lead from the US suggests a positive day for the local market, although the quarterly index futures expiry and associated stock market position adjustments introduce some uncertainty.
The potential Fed rate hike could increase certainty and reduce market volatility by acting at the September meeting, as it reflects confidence in the US economy's growth.
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