FORECASTAfter anxious investors drove the ASX 200 lower on Monday, the index is expected to snap back from those sharp declines on Tuesday after a much anticipated speech from U.S. Federal Reserve member Lael Brainard helped calm fears of an imminent rate hike. “The NZD has regained some of its poise of late, and looks set to continue grinding higher as expectations of a Fed rate hike fade and markets focus on what is set to be some compelling local data this week”.
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Fed Governor Lael Brainard urged prudence in tightening monetary policy, even as the economy is making gradual progress to achieving the central bank’s goals.
The Fed governor said there are reasons to be more concerned about inflation undershooting than overshooting.
“Given our view that the Fed will remain on hold and is more likely to lift rates in December provided that economic and financial conditions remain in line with its outlook, we think the uptrend in gold will resume shortly”. Ultra-low interest rates have been a key driver of an extended stock market rally.
In Toronto, the S&P/TSX composite index climbed 57.14 points to 14,597.14, while in NY, the Dow Jones industrial average surged 239.62 points at 18,325.07. Future traders are pricing in a 15 percent chance of a hike at the Fed’s September 20-21 policy-setting meeting, down from 21 percent earlier on Monday, according to the CME Group’s FedWatch Tool.
US Treasurys briefly rose on Ms Brainard’s comments, then fell, pushing yields on the benchmark 10-year note one basis point higher to 1.671%. The S&P rose 1.47 percent to 2,159.04 while the Nasdaq soared 1.68 percent to 5,211.89. Low rates have fueled a steady rise in stock prices as investors put their money in high-risks stocks instead of low-interest savings accounts or bonds.
Analysts noted that Brainard’s remarks strongly suggest she would likely dissent if the Fed made a decision to move rates higher.
A report from the Organization of the Petroleum Exporting Countries said non-OPEC crude production is likely to climb in the second half of this year, lowering the possibility that OPEC members, who fear the loss of market share, will reach a deal at a meeting later this month to freeze output.
The local currency was little changed at 97.13 Australian cents from 97.09 cents yesterday and gained to 4.9083 Chinese yuan from 4.8857 yuan. The Fed’s next meeting is on Sept 20-21.
The dollar index slipped to 95.10 from around 95.35 at the end of last week.
The BOJ is expected to unveil the results of a comprehensive review of its policy it had promised in July, in which many market players believe the central bank will indicate its preference for a steeper yield curve to cushion the blow on banks from negative interest rates.
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In commodities markets, crude oil prices ended higher, with traders citing a weaker US dollar and stronger USA stocks. In New York, copper futures for delivery in December advanced 0.4 percent to $2.10 a pound on the Comex.
