Originally published by Rivkin Securities
Following from the prior day’s rate hike, US markets opened lower yesterday but rallied throughout the session to close only slightly down. Large cap technology stocks (such as Amazon (NASDAQ:AMZN)) lost more ground last night with Amazon now down 5% since last week. The markets appear to be shrugging off the fact that the Federal Reserve will be continuing its rate tightening and will soon be allowing the bonds it holds to run off. The effect of the bond runoff will be something like a ‘quantitative tightening’ as money is effectively pulled from the economy.
The Australian employment data yesterday showed a much larger increase in employment than expected. Full time jobs increased by 52,100 while part time jobs decreased by 10,100 for a net gain of 42,000 jobs. Furthermore, the unemployment rate dropped by 0.2 points to 5.5%. The data further complicates the task of the Reserve Bank of Australia in determining interest rate policy. The Aussie dollar rallied on the news, climbing well above $0.76 before fading to finish the day below its pre-announcement level.
Interestingly, long term bond yields in the US haven’t risen as a result of the rate hike and expected run-off of the Fed’s balance sheet, with the 10-year yield currently at 2.16%, a six-month low. The lack of increase in the longer term yields suggest the market is sceptical that the Fed will be able to proceed with rate hikes at the pace it currently expects which may be reflective of some of the weak economic data that has been coming out of the US.
ASX futures are pointing to a higher open this morning (up 0.33%) which will hopefully reverse some of yesterday’s losses.
Data releases:
· Bank of Japan Policy Rate ~14:30pm AEST
. Euro Final CPI (YoY) 7:00pm AEST