Federal Reserve Cuts Rates by 25 Basis Points

Stock Markets

Global:The main event overnight was the meeting of the Federal Open Market Committee to decide interest rates in the US. As expected, it delivered a 25 basis point cut although the surprise was in the fact that it was a 'hawkish' cut, meaning that the Fed will now wait and see for the foreseeable future before deciding which way rates need to move next. The Dow Jones had been down in the hour before the Fed decision although afterwards it rallied and managed to close the session slightly positive. President Trump criticised Fed Chairman Jerome Powell for not doing more to stimulate the economy. For his part, Powell hinted that the Fed can only do so much and the government needs to do its part to help the economy along.

Commodities and Currencies:Aside from the stock market, the US dollar was another winner from the Fed press conference, with the US dollar index rising 0.29% for the day. On the other hand, gold prices declined as a result of the diminished prospect for further rate cuts. Gold is currently at US$1,493 per ounce, having broken down through the US$1,500 level earlier in the day. Oil prices are continuing to decline after Saudi Arabia announced the impact of the attacks on oil production would be less than initially estimated. The Saudis now believe they can get oil production back to normal by the end of the month. Furthermore, the EIA reported that crude inventories in the US increased by around 1 million barrels last week.

The spot price of gold is currently down 1.0% at US$1,492 per ounce.

The AUD is currently down 0.5% at US$0.683.

This article was written by William O'Loughlin – Portfolio Manager, Rivkin Securities Pty Ltd. Enquiries can be made via [email protected] or by phoning +612 8302 3633.