Originally published by Rivkin Securities
The FOMC released the minutes from its most recently monetary policy meeting early this morning and the consensus appears to be that it is more hawkish than expected. The board noted that stronger economic growth increases the probability of further rate hikes with the market implied number of rate hikes for 2018 now at three. The economic impact of the company tax cuts is now anticipated to be more significant than it first thought. The next FOMC meeting is on 21 March and according to the CME FedWatch tool the implied probability of a 25-basis point rate hike at this meeting is 83%. Such a rate hike would bring the US cash rate above the Australian cash rate for the first time in 15 years.
The market reaction to the minutes was quite severe. The Dow Jones Industrial Average swung from up 250 points to being down 166 points (0.67%). Similarly, the S&P 500 swung lower to close down 0.55%. The gold price initially spiked higher but then plunged by around US$13 as the prospect for higher rates damps the outlook for gold. US bond yields spiked higher, the 10-year yield back to 3.5 year highs at 2.95%.
The Australian dollar initially jumped and then dropped sharply after the release of the FOMC minutes. It is now testing the US$0.78 level. The weaker Australian dollar actually produced a higher $AU gold price overnight despite the fall in the US dollar price.
Data Releases:
- UK Second Estimate GDP 8:30pm AEDT