Originally published by Rivkin Securities
UK stocks, as per the FTSE 100 index, opened flat yesterday but started declining from the outset and continued down for most of the morning, eventually closing 1.2% lower. US stocks fared slightly better with the Dow falling only 0.3% and the S&P 500 closing almost flat.
The main event of the night was the FOMC meeting although markets didn’t expect any policy change to come from this meeting. The statement was broadly taken to be more hawkish than the prior one with the Fed seemingly confident enough to call the economy strong and reiterate that further gradual increases in interest rates are warranted. According to the CME Fedwatch tool, the probability of a rate increase at the September meeting is now 91%, up from just 73% a month ago. Following this, a December rate hike, which would represent the fourth hike for the year, is currently priced with a 67% probability of occurring. The initial reaction to the statement saw gold prices jump before quickly reversing and closing near the lows of the day while the US dollar index finished slightly higher at 94.66.
The US 10-year bond yield climbed above 3% early in the US trading session but had fallen back below this key level shortly before the Fed decision. The hawkish statement boosted the yield, however, and brought it to where it is currently sitting at 3.01%. The 10-year yield broke convincingly above 3% in May this year but failed to hold there so bond traders will be watching closely to see if it can now hold this level.
Tonight, the Bank of England (BOE) makes its interest rate decision and is expected to vote to increase rates by a further 25 basis points. This would bring the official bank rate up to 0.75% and mark the second rate increase from the BOE for this cycle.
Data Releases:
- Australia Trade Balance 11:30am AEST
- UK Interest Rate Decision 9:00pm AEST