US & European markets trade lower, ASX futures take back 48 points of yesterday's 77 point rally - important notes on US Fed policy

The Aussie stock market is set to give back around two thirds of its gains from yesterday's 77 point rise. It looks as though 5,300 is the new level at which the market is looking to build some support, which takes us back to the January 2015 lows. The US Federal Reserve released its July policy meeting minutes early this morning (4am Sydney) and these were initially interpreted positively, as you can see on today's second chart. Although the buying wasn't sustained, it's important to note that the selling during the US session took place before those minutes were released - so last night's sell-off was more likely a response to European investors taking risk off the table prior to the Fed minutes release - markets there were down around two percent. This is interesting because ultimately the market probably received what will be positive with regard to what the Fed had recorded during its policy meeting. Among other things, the Fed minutes said, with regard to its committee members' views on changing monetary policy, "Most judged that the conditions for policy firming had not yet been achieved, but they noted that conditions were approaching that point... almost all members indicated that they would need to see more evidence that economic growth was sufficiently strong."

Another important note - these minutes were recorded on 28/29 July. When did the Chinese devalue the yuan? 11 August. Why is this important? Well, if the Fed thought that conditions weren't quite ripe for a rate rise then, WTI crude oil (last chart) is now US$7-$8 less than where it was trading then and the Chinese have given them a firm warning against doing anything that will cause the US dollar to further appreciate. So inflationary pressures are even weaker now, and the world's view on unnecessary US interest rate rises and what that may do to emerging Asia have been made clear by the Chinese.

To conclude, I think Europe probably sold off on the false anticipation of hawkish (more likely to raise rates than cut) US Fed minutes, Wall Street probably sold off in response to Europe, traders showed a willingness to buy after the minutes were released so last night might have culminated in quite a false signal for traders in the Asian time zone this morning, with regard to what equity futures did. If Australian equity markets sustain a drop today, it should be about Asian time zone issues and not because it sees last night's falls as warranted due to talk from the Fed.

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Source: Rivkin, Saxo Bank

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This article was written by Scott Schuberg, CEO of Rivkin Securities Pty Ltd. Enquiries can be made via or by phoning +612 8302 3600.

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