Originally published by Rivkin Securities
After being closed for 1.5 days for the July 4 holiday, US stocks had a decent rally overnight with the S&P 500 closing up 0.9%. The minutes of the most recent Federal Reserve meeting were released early this morning. Some of the board members expressed concern that the extended period of low rates could lead to a spike in inflation. This implies a more hawkish stance is being taken by the central bank and firms the outlook for at least one more rate hike this year. According to the CME FedWatch tool, there is an 80% chance of a rate hike at the September meeting of the Federal Reserve. The board also expressed concern about the trade tariffs being implemented by the Trump administration and by other countries in retaliation.
Shorter term US bond yields rose on the release of the Fed minutes, further lowering the spread between the 2-year and 10-year bonds. The spread is now just 28 basis points meaning that investors are demanding only 0.28% more in interest for taking an additional eight years of duration risk. US 10-year bond yields are currently at 2.83%, well down from the recent highs of above 3.0%.
Tonight, US employment data will be released which is expected to show a gain in employment of 195,000. This would be lower than the prior month’s 223,000 gain although still a strong number. The unemployment rate is expected to stay at 3.8%.
The ASX 200 is expected to open higher this morning as futures are up 28 points this morning.
Data Releases:
- US Employment Data 10:30pm AEST