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As expected, the Fed kept most policy structures on autopilot by further reducing the bond buying program now at $25 billion; this firmly keeps the October finish in sight and again rates were unmoved.
Language around rates also remind on autopilot; the delivery was slightly different in that unemployment was no longer referred to as ‘elevated’, however Chairperson Janet Yellen continues to emphasise her position on why monetary policy will remain at current levels.
‘A range of labour-market indicators suggests that there remains significant underutilisation of labour resources.’ This continues to highlight the Fed’s concern around weak wage growth and under employment and suggests that mid-2015 is still the most likely time to see a rate rise.
Interestingly, its preferred measure of inflation, which is the personal consumption expenditure price index, rose 1.8% year-on-year in May, and last night saw GDP well and truly outpacing expectations with a 4% rise. Increasing consumer confidence, consumer spending and enterprise investment have seen growth returning to Q4 2013 levels, and again illustrates that Q1 2014 was an abnormality.
This does raise questions about the current monetary path; growth of this kind will bring wage growth and more and more firms will expand headcount and look to attract talent. It will also bring inflation as durable goods saw the fastest pace of growth in five years. This breeds further optimism and the gains suggest that the Fed funds rate is likely to come under closer scrutiny in the coming months.
However, the USD has risen 13 of the past 15 trading days; bonds have also experienced a strong run along with equities, and the fact no major news was released gave the market a chance to release the valve, and saw a ‘sell the fact event’, seeing the most US instruments lower.
Ahead of the Australian open
Today is the end of an interesting month for the Australian market; in the past 15 trading days, 12 have been positive prints and one of the three down days was a fall of 0.1 of a point - showing July has been quite a bullish month and is now at the highest level since May 30 2008. With managers keen to finish the month off, I would expect some jostling come the end of the day’s trade.
We are calling the ASX 200 up five points to 5627, but again the moves are likely to be inconsistent to the trend as end of month trading takes over. The spot iron ore price was once again higher, and could see the broader market moving higher still, however overnight London-listed miners took a solid hit that may be the lead for today’s trade.