Originally published by Rivkin Securities
US stocks recovered after two days of declines but early gains were slowly whittled away during the rest of the trading session. A small boost in the last hour of the trading session prevented the two major indices from closing lower although the S&P 500 was barely up. S&P/ASX 200 futures are down three points this morning.
US bond yields remained high overnight while Australian bond yields fell following slightly weaker than expected CPI data that was released yesterday. The quarterly CPI rose 0.6% compared to expectations of 0.7% and the market obviously interpreted this as reducing the likelihood of a rate hike in the near future. The Australian and US ten-year bond yield spread is now just 10 basis points and risks going negative for the first time since 1998.
Janet Yellen had her last FOMC meeting early this morning (AEDT) at which the committee decided to leave rates unchanged, as widely expected. Nevertheless, the commentary suggests that further gradual increases in rates are warranted with inflation to stabilise at around 2% in the medium term. The CME Fedwatch tool now predicts a greater than 83% probability of a rate hike at the next FOMC meeting in March at which new Fed President Jerome Powell will preside. The reaction to the FOMC in gold was somewhat unpredictable as the price initially spiked around $6 lower before quickly recovering and closing the day higher at $1,345.
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