FOMC Members Split on Further Rate Hikes

US markets appear to have returned to their low volatility slow march upwards as both the Dow Jones and S&P 500 closed slightly higher, up 0.12% and 0.14% respectively. The latter half of the session gave back some of the gains made early on as news came out that president Trump has dissolved his business council following a series of CEO resignations from the council. Over the last couple of weeks, we have seen some Federal Reserve members argue for a continuation of rate hikes while others have argued that there is no hurry to continue raising rates. This division was confirmed in the minutes of the last FOMC meeting released overnight which showed that “some participants” argued for a slower path of rate rises until inflation was back on track. Although the reaction in stocks was only minor, gold jumped, climbing around US$10 per ounce and moving it back towards its six-month high.

Oil ultimately closed down overnight despite the Department of Energy confirming the large crude inventory draw reported by API. The market obviously focussed on the production increase and perhaps the builds in gasoline and distillates inventories rather than the crude draw. Crude inventories are declining faster than usual at this time of year and in just four months we have undone the builds that occurred over the prior 18 months. If inventory declines continue at this pace, stocks will fall back below the five-year average in around two months. The pace of the declines indicates that the OPEC production cuts are having an effect although the current oil price suggests that the market is sceptical about the longer-term prospects for rebalancing of the oil market.

Today we get Australian employment data which is expected to show a steady unemployment rate at 5.6% with a net increase in employment of 19,800 jobs.     

Data Releases:

–    AU Employment Change & Unemployment Rate 11:30am AEST

–    UK Retail Sales 6:30pm AEST

–    ECB Monetary Policy Meeting Accounts 9:30pm AEST

–    US Industrial Production & Capacity Utilisation 11:15pm AEST

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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.