Originally published by Rivkin Securities
Overnight the US Fed met for the first time since Donald Trump took office and as expected, kept rates unchanged at 0.5-0.75%. It mentioned that although inflation has risen in recent months, it is still below the committee’s 2% target. Furthermore, despite solid job gains and increasing economic confidence, the path of rate hikes would be gradual. Overall the statement was more dovish than the market expected and the odds of rate hikes for 2017 fell slightly. The Fed didn’t indicate when it might raise rates again. According to market pricing, the odds of a hike at the next meeting in March is just 32%.
Gold fell sharply going into the open of the US markets but recovered quickly, and rallied for much of the trading day. It got a further boost from the slightly dovish Fed statement to close almost unchanged for the day.
Oil had a volatile, but ultimately positive, session despite large increases in inventories. Inventory levels of crude, gasoline and distillates all rose significantly on the week, throwing into question how effective the OPEC cuts will ultimately be. Nevertheless, WTI is trading towards the highs of its recent range at $53.57.
Prior to the Fed decision, employment data from private firm ADP came out significantly higher than expected. The total number of jobs created was 246,000 compared to expectations of a 165,000 rise. The ADP number is released two days before the official number and it attempts to provide an estimate that is close to the official data. If the official number on Friday is close to the ADP estimate it would be seen as a very positive result.
Both the Dow and S&P 500 were both just barely up overnight and today the ASX 200 is set to open slightly higher. Today at 11:30 am Australia’s trade data will be released with consensus estimates looking for a $2bn surplus, largely due to high amounts of iron ore and coal exports. A surplus for January would be the second surplus in a row after many months of deficits. As long as iron ore and coal prices remain high, it is likely we will see more surpluses this year.
Data releases:
· Australian Trade Balance 11:30am AEDT
· U.K. Interest Rate Decision 11:00pm AEDT
· U.S. Prelim Non-farm Productivity 12:30am AEDT
· U.S. Prelim Unit Labour Costs 12:30am AEDT