Market slips as investors await Fed move
The benchmark S&P/ASX 200 Index was down 11.5 points, or 0.24 per cent, at 4814.4. The broader All Ordinaries Index was down 10.4 points, or 0.22 per cent, at 4794.6.
The market fell nearly 1 per cent during the day, in line with falls on Asian markets and after the minutes from the latest Reserve Bank board meeting provided little guidance.
But data showing strong rises in Chinese property prices helped the market recover some of its losses during afternoon trade.
IG strategist Chris Weston said investors were sensitive before the US Federal Reserve's policy board meeting being held on Wednesday.
US Fed chairman Ben Bernanke is tipped to provide direction on whether policymakers will continue with a monthly $US85 billion bond-buying program, known as quantitative easing.
Bond futures prices were slightly higher with a small rally after the release of the RBA minutes.
The RBA kept the cash rate unchanged at a record low of 2.75 per cent two weeks ago but the minutes of the policy meeting showed that it was still inclined to reduce the rate if inflation stayed low and growth in the non-mining sectors of the economy became sluggish.
"The RBA obviously kept the view there was scope to ease rates should that prove necessary," Westpac interest rate strategist Tim Jung said. "We don't think there is a whole lot in there for the market to change its expectation of what the RBA will deliver."
The September 10-year bond futures contract was trading at 96.600 (implying a yield of 3.400 per cent) after peaking at 96.640, up from 96.595 (3.405 per cent) on Monday. The three-year contract was at 97.440 (2.560 per cent), up from 97.435 (2.565 per cent).
Recent economic data has shown signs that the US economic recovery is getting more solid, raising the possibility that the Fed would start to wind back its quantitative easing, Mr Jung said.
"The obvious thing to look for is the tapering of their QE program," he said.
"Any indication of the size and also the timing of the tapering will be crucial to near-term price action."
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The market slipped as investors waited for an update on US stimulus and the Federal Reserve’s policy meeting. The S&P/ASX 200 fell 11.5 points (0.24%) to 4,814.4, while the All Ordinaries was down 10.4 points (0.22%) at 4,794.6. Markets also fell in line with Asian losses and a quiet set of RBA minutes that gave little fresh guidance.
Stronger-than-expected rises in Chinese property prices helped the market recover some of its earlier losses during afternoon trade, providing support after the initial fall.
Investors are focused on whether Fed policymakers will continue the monthly US$85 billion bond‑buying program (quantitative easing) or begin tapering it. Any indication of the size and timing of tapering will be crucial to near‑term price action, because it affects global liquidity, bond yields and equity market sentiment.
The minutes showed the RBA kept the cash rate at a record low 2.75% two weeks ago but remained open to easing further if inflation stayed low and non‑mining sector growth became sluggish. Westpac’s strategist Tim Jung noted the minutes suggested there’s scope to ease if necessary, though they didn’t materially change market expectations.
Bond futures were slightly higher with a small rally after the RBA minutes. The September 10‑year futures traded at 96.600 (implying a 3.400% yield) after peaking at 96.640, up from 96.595 (3.405%). The three‑year contract was at 97.440 (2.560%), up from 97.435 (2.565%).
Tapering means the Fed would start winding back its monthly bond‑buying program. Everyday investors should care because tapering can push bond yields higher, tighten financial conditions and influence short‑term equity price moves. The article notes that any hint about the timing or size of tapering will be important for near‑term markets.
Markets are very sensitive ahead of central bank meetings. The article quotes IG strategist Chris Weston saying investors were on edge before the Fed meeting, and recent US data suggesting a firmer recovery has increased the chance the Fed could start tapering QE, which heightens volatility.
Keep an eye on the US Fed policy meeting for any signals on QE tapering, US economic data that might influence the Fed, RBA commentary on inflation and non‑mining growth, shifts in bond yields, and key international data such as Chinese property prices that can drive risk sentiment.
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