Markets to be dominated by this week's Fed decision

Trader thinking this week will be dominated by Thursday morning’s Fed decision. Although we are now only four days out from the decision, there is little sign of a market consensus developing, either on what the Fed will do or on how markets will react if they do lift rates.

Major events like the Fed decision can often produce calm before the storm effect as traders take risk off the table, preferring to react to the news rather than pre-empt it. However, the high volatility of recent weeks means this scenario is by no means guaranteed.  There is also a lot of data on the US economy due for release prior to the Fed meeting. Any unexpected results on this week’s release of US retail sales, industrial production or CPI data could influence thinking on the Fed decision and roil markets.

The weekend data on China’s economy during August confirmed weakening growth in those parts of the economy to which Australia’s exports are most sensitive.  Although stronger food prices helped retail sales figures beat expectations, weaker than expected industrial production and fixed asset investment points to ongoing moderation in demand growth for iron ore and coking coal.

This morning’s announcement that Oil Search has rejected Woodside’s bid will not be a surprise to markets. However, Oil Search’s rejection of the bid ushers in a new stage of uncertainty, especially for Woodside shareholders, as they wait on news of whether it will improve its offer and if so by how much.