FOMC minutes signal caution, European & US markets higher, ASX SPI200 futures up 18 points

U.S. equity markets rallied on Wednesday, following the release of the minutes for the March 2016 FOMC meeting. The S&P500 closed up 1.05%, the Nasdaq100 finished 1.63% higher, while the US Dollar index was 0.12% weaker reaching the lowest levels in the past six months. The minutes from the meeting echoed the recent dovish comments by Janet Yellen, as members "expressed a view that the global economic and financial situation still posed appreciable downside risks to the domestic economic outlook". This is an important moment for the Federal Reserve as it highlights a change in weight given to global growth. It makes sense for the FOMC to raise rates cautiously going forward given rates are near historic lows and members are able to hike rates if the economy exceeds expectations while only limited room to ease monetary policy if necessary. While signs of inflation are picking up, to me it makes sense the FOMC would rather exceed their 2% inflation target than risk pushing the U.S. economy back into recession. The first image below highlights the probability of a rate hike at future meetings based of trading in the futures market, which is currently pricing in a 0% chance of a hike at the April 27th meeting and roughly a 20% chance come June.

Elsewhere, Chinese services & composite PMI data continues to increase (52.2 vs 51.2 prior and 51.3 vs 49.4 prior respectively). German retail PMI also increased with a reading of 54.1 vs 52.5 prior while overall Euro-Zone retail PMI declines from a prior 50.1 to 49.2. A reading over 50 signals expansion while less than 50 signals contraction. European markets closed higher with the Dax30 up 0.64% while the FTSE100 finished 0.53% higher.

Looking to the Australian share market and we can expect a stronger open this morning with ASX SPI200 futures up 18 points while the Australia dollar traded 0.74% stronger overnight, currently residing around 0.7601 US cents. The second chart below highlights the ASX200 index which has been range bound between 4,900 and 5,300 over the past 12 months. Technically, it is important that the price remains above the 4,900 region if we are to see higher prices over the coming months. 

Data releases:

·         US initial jobless claims (Apr) & continuing claims (Mar) 10:30pm AEST

Source: Rivkin, Bloomberg, Updata
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This article was written by James Woods – Global Investment Analyst, Rivkin Securities Pty Ltd. Enquiries can be made via [email protected] or by phoning +612 8302 3600.