This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
The divisions within the minutes were quite stark, and even if we do see a rate hike in December it would not be totally surprising to see some dovish dissensions. Although Lael Brainard, one of the most-noted Federal Reserve (Fed) doves, is having her name bandied about as a potential Treasury Secretary candidate in Hillary Clinton’s cabinet, which could possibly upset the hawk/dove balance in the Fed next year.
Nonetheless, further evidence of a rate rise helped the DXY US dollar index rally another 0.2% to 97.9. Although much of this was driven by gains against the yen and the euro, which both hold large weights in the index. The dollar was relatively unfazed by the miss on market expectations for the JOLTS new job openings.
Bond yields continued to move in line with rate rise expectations. The US ten-year yield almost broke through 1.8%, but pared this back to still close at its highest level since May.
The pound staged a bit of a recovery yesterday after Theresa May indicated that parliament would have a vote on the final Brexit deal. But it began selling off again as staunch Brexiteer David Davis, the Brexit minister, spoke in parliament stating that he would 'make sure that the British vote on Brexit is respected', which is a great poorly defined mandate. The Financial Times also published what they called a conservative estimate of the 'exit bill' from the European Union for the UK of 20 billion euros. The pound closed the session up 0.7% at US$1.2211, but according to the Bank of England the pound is at a 168-year low in trade-weighted terms.
The bounce in the pound did help lift sentiment across a range of markets creating a relative risk-on move with the AUD, NZD and CAD all moving higher. The Aussie dollar gained 0.4% to close at US$0.7569, performing well given the decent US dollar performance overnight.
The S&P 500 managed to buck a relatively negative performance in European equities overnight, with the index closing up 0.1%. Investors seemed to be going for yield with real estate and utilities seeing the best performance, while the only three down sectors were energy, materials and healthcare.
Although despite the positive gains in the overall market, the VIX volatility index moved up to 15.65 possibly indicating greater demand for downside protection in the options market.
Oil continued to pull back from its recent highs, losing another 1% overnight, but WTI oil still managed to hold on above US$50 at US$50.31.
After a mixed overnight session, Asian markets are looking at a relatively flat open. The main exception is the Nikkei, which is set to open higher after the yen saw a decent 0.7% weakening against the USD.
The ASX SPI futures are pointing to a 17 point loss at the open. The drop in iron ore and copper alongside oil overnight do not bode well for the commodity-related stocks in the market. And it could be a tough session for the market as a strengthening US dollar starts to impact elements of the market.