US Rate Hike Cycle May Be Nearing End

Early this morning, Federal Reserve Chairman Jerome Powell gave a speech in New York at which he mentioned that the Federal Funds rate is now just below the neutral rate, implying that there may only be very few additional rate hikes from here. Rising rates has been a significant concern of markets lately and has caused increased volatility in stock prices. It is no surprise, therefore, that the comment from Powell sparked a buying frenzy in stocks that led the Dow Jones to a gain of 2.5% and the S&P 500 2.3%. The reason for the change in tone is unclear although two major candidates are the declines in stock prices and the regular commentary from President Trump that rate hikes are unwanted.

The comments from Powell also affected other asset classes, including gold which jumped US$7 per ounce and the US dollar index which fell 0.5%. The falling USD pushed the AUD/USD close to a three-month high at 0.7308. Commodities were broadly higher overnight with the CRB index climbing 0.72%.

Oil prices continue to slide while natural gas prices spiked higher overnight. WTI oil is now trading right around the $50 per barrel level, a price last seen well over a year ago, as the current oversupply situation has now manifested itself in ten consecutive weekly increases in US oil inventories. Natural gas prices, on the other hand, jumped over 10% last night as production fell slightly and forecasts indicated colder than normal weather in the US for the next two weeks. 


Market Data:

-    Australia Private Capital Expenditure 10:30am AEDT

-    FOMC Meeting Minutes 5:00am AEDT

This article was written by William O'Loughlin - Investment Analyst, Rivkin Securities Pty Ltd. Enquiries can be made via william.oloughlin@rivkin.com.au or by phoning +612 8302 3633.

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