Originally published by Rivkin Securities
The Dow Jones reached a new all-time high overnight, now sitting at 20,775. Late in the session, the minutes from the previous FOMC meeting were released with the language indicating that a rate hike is on the cards “fairly soon” assuming that the labour market and inflation are consistent with, or better than, expectations. This qualification gives the FOMC some wiggle room in terms of the timing of the next hike and on balance, the minutes did not increase the probability of a March rate hike. At this stage, June is the most likely time for the next hike. Regarding the Fed’s balance sheet, the minutes indicate that a gradual decrease in its asset holdings would occur over the next few years although no specific plan was mentioned. This will surely be a difficult process for the Fed which must unload trillions of dollars worth of treasuries without sending yields drastically higher. Several FOMC members specifically mentioned risks associated with market expectations of Trump’s expansionary fiscal policies. They said that the recent rises in equity prices may be a reflection of optimism surrounding possible tax cuts and other stimulatory policies that may not actually eventuate.
The US dollar dropped and the gold price jumped as the minutes were released perhaps indicating that the FOMC was more dovish than the market expected. US treasury yields turned lower although they have been consolidating in a fairly narrow range since the large increases seen after the presidential election.
WTI prices continue to trade within a fairly narrow range between $50-$55 per barrel although the price dropped last night as higher inventories offset optimism about OPEC production cuts. Oil traders appear torn between these two factors although inventories will have to start declining if the price is to rally further.
Locally, the ASX 200 is set for a small drop on the open according to futures pricing. At a level of 5,805 we are at an almost two year high for the index with an uptrend in place since February 2016. Today Australia’s private capital expenditure data will be released at 11:30am AEST. The expectation is for a small drop of -0.4% although this would be an improvement over the previous quarter which had a fall of -4%.
Data releases:
· Australian Private Capital Expenditure (QoQ Q4) 11:30am AEDT
· German Final GDP (QoQ Q4) 6:00pm AEDT