Scoreboard: Fed suspense

Equity markets pushed a little higher overnight in the build up to the Federal Open Markets Committee meeting, although there wasn’t a lot in it.

To be honest, I’m little surprised at even that modest bid given the reaction of the bond market to US inflation data, which came in higher-than-expected -- rising 0.4 per cent (0.2 per cent expected) to be 2.1 per cent higher annually. Core inflation was up 0.3 per cent for the merry month of May, with annual price gains at 2 per cent.

Bonds sold off on that (yields higher) as investors priced in a greater chance of Fed action. As we know, any hint that the Fed may reduce stimulus (or in this instance reduce it at a faster pace) is normally bad for stocks, so it’s impressive they still managed to push higher.

Rates had a big move overnight -- well comparatively. The US 10-year Treasury yield shot up on the US open and pushed higher for the whole session. At the close, the 10-year was 6bp higher to 2.655 per cent. The 5-year yield was then up 6bp to 1.75 per cent, while the 2-year is at 0.48 per cent. Aussie futures sold off -- both the 3s and 10s down 3 ticks to 97.16 and 96.26 respectively.

Equities enjoyed a modest bid on both side of the Atlantic. The S&P 500 was 0.2 per cent higher at the bell (1941), the Dow rose 27 points (16808), while the Nasdaq was 0.4 per cent higher at 4337. Over in Europe, the Dax was 0.4 per cent higher, the CaC rose 0.6 per cent and the FTSE 100 bucked the trend falling 1.1 per cent.

Commodities had mixed session overnight. Crude markets saw Brent push higher (0.3 per cent to $113.3) again after Russia cut Ukraine’s gas supply. In contrast, WTI fell 0.7 per cent ($106.2). In the metals space, we saw gold off smalls ($1270 per ounce), silver was flat and copper rose 0.3 per cent. 

Forex markets were reasonably quiet -- the euro was down smalls to $US1.3547 on a 40 pips range. It was a similar session for the British pound which sits at $US1.6962 as I write (50 pip range). As for the Australian dollar, it weakened a little more and sits at $US0.9339 from $US0.9354 at 4.30pm (AEST).

Elsewhere, we saw a few decent data points. In Europe, the German ZEW survey, the current situation index, rose to 67.7 from 62.1. Economic sentiment deteriorated sightly, the index falling to 29.8 from 33.1, although it remains well above average.

In Britain, the consumer price index slipped 0.1 per cent in May after 0.4 per cent gain the month prior. Annual inflation moderated to 1.5 per cent from 1.8 per cent with core at 1.6 per cent from 2 per cent.

Over in the US, housing starts slumped 6.5 per cent in May following a 12.7 per cent gain the month prior. And finally, the US Supreme Court said that it wouldn’t review a decision by the lower courts that require Argentina to pay hedge funds compensation for a 2001 default. Argentina has said the decision won’t lead to a default, although there are fears this is exactly what will happen.

Markets today. The SPI suggests Aussie stocks will be flat today. Otherwise for the data, we see Chinese property prices at 11.30am (AEST). The Bank of England’s minutes are then released at 6.30pm (AEST) with eurozone construction following soon after. For the US, key data includes the current account and of course the FOMC decision at 4am (AEST). The Fed is expected to reduce the pace of printing to $35 billion per month from $45bn.

Have a great day.