Market gets set for a dovish Fed while investors order up on Domino's

Stock markets moved last night to pre-empt a cautious tone from Chair Yellen when she discusses the Fed’s approach to rate hikes during 2016. Traders appear to have decided that the profit taking and risk off moves of the past two weeks have gone far enough given the likelihood that the Fed will adopt a cautious approach following its first rate hike.

US CPI data for November, underscores the fact that with weak commodity prices and plenty of excess capacity in world economies, there’s no foreseeable need for urgency in the Fed’s rate hike program. Subdued inflation expectations have seen US bond yields remain relatively low. This has diluted the immediate threat to stock market valuations from forecast increases in the Fed rate over the next 12 months.

Energy stocks have been supported today following last night’s rebound in oil. Expectations that BHP will further reduce its capital expenditure on US oil and gas, underscore the fact that further cuts in US production are likely as existing rigs run off. The steady spot iron ore price has helped investor sentiment towards mining stocks on what is likely to be a good session for the market. However, weaker copper prices serve as a reminder that excess supply and moderate demand growth pose an ongoing risk to many commodity markets. 

This morning’s rally, clearly demonstrates that investors are happy to stay with a winning strategy and by backing Domino’s management team. Today’s news of Domino’s move into Germany has investors looking for a repeat of their success elsewhere around the world.