Wall Street experienced a highly volatile day, sparked by the Federal Reserve’s latest meeting minutes, which hinted at further interest rate hikes.
Markets at 8:05am (AEDT):
- ASX SPI 200 futures +0.1pc, ASX 200 (Wednesday’s close) flat at 5,944
- AUD: 78.03 US cents, 56.05 British pence, 63.5 Euro cents, 84.03 Japanese yen, $NZ1.07
- US: Dow Jones -0.7pc at 24,798, S&P 500 -0.6pc at 2,701, Nasdaq +0.2pc at 7,218
- Europe: FTSE +0.5pc at 7,282, DAX -0.1pc at 12,470, Euro Stoxx 50 -0.1pc at 3,430
- Commodities: Brent crude -0.4pc at $US65/barrel, spot gold -0.4pc at $US1,324.36/ounce, iron ore flat at $US78.43/tonne
The Dow Jones index fared the worst, finishing 0.7 per cent lower.
The S&P 500 and Nasdaq lost 0.6 and 0.2 per cent respectively.
These closing figures were a far cry from the main indexes’ 1 per cent surge immediately after the Fed’s minutes were released at 6:00am (AEDT) — two hours before US markets finished trading.
However, that turned out to be a knee-jerk reaction, as US markets fell quickly after the US 10-year treasury bonds lifted to a four-year high of 2.952 per cent.
Prior to the minutes, nearly every S&P sector was trading higher. But stocks sharply reversed direction, with telecommunications (-1.7pc), energy (-1.6pc) and utilities (-1.3pc) ending up as the worst performing sectors.
What did the Fed minutes say?
Essentially, the Federal Open Markets Committee indicated it was optimistic about stronger-than-expected US economic growth this year, and there may be more interest rate hikes ahead.
According to the minutes, “a majority of participants noted that a stronger outlook for economic growth raised the likelihood that further gradual policy firming would be appropriate”.
Most of the Fed members see the cost of living moving up towards their inflation target over the medium term.
“Almost all participants continued to anticipate that inflation would move up to the Committee’s 2 per cent objective over the medium term as economic growth remained above trend and the labour market stayed strong,” the minutes noted.
In almost any committee, there are bound to be some dissenting voices.
“However, some participants saw an appreciable risk that inflation would continue to fall short of the Committee’s objective,” the Fed minutes also said.
The market is widely expecting the Fed to lift interest rates at its next meeting in March, to a range between 1.5 and 1.75 per cent.
Aussie dollar weakens
Australian shares may open lower today, following the weak lead from US markets.
As reporting season unfolds, some of the companies announcing their profits today include Qantas, Nine Entertainment, Crown Resorts, Bellamy’s, Blackmores and Flight Centre.
The Australian dollar has fallen significantly against several currencies after the Fed’s meeting minutes were released.
The local currency slipped by 1 per cent to 78.05 US cents.
It is also weaker against the British pound (-0.4pc), euro (-0.6pc), Japanese yen (-0.6pc) and New Zealand dollar (-0.6pc).