FOMC Minutes More Dovish Than Expected

 US stock markets gave back some of the prior day’s gains last night with both major indices falling. The main event of the night was the release of the minutes of the latest Fed meeting which surprised traders as being more dovish than expected. Although some members noted that continuing the current path of rate hikes is appropriate, other members expressed concern that inflation still wasn’t at the committee’s objective of 2%. The market implied probability of a rate hike in December still sits at 100% but expectations of further hikes in 2018 may now be reduced. The next FOMC meeting will occur in three weeks.

Gold prices surged almost 1% overnight, again approaching the US$1,300 level. Most of the rally actually occurred before the release of the FOMC minutes and although the initial reaction to those was positive, it subsequently gave back those gains. Priced in Aussie dollars, the gold rally wasn’t as strong as broad weakness in the US dollar caused a strengthening of the Aussie dollar. The AUD/USD exchange rate is now back above US$0.76 following from a sharp rally.

The iron ore price rose almost 5% overnight, getting back to its highest point since mid-September. This will be welcome news for Australian iron ore producers, such as Fortescue Metals (FMG), whose share price has been in decline since mid-September.

Oil prices have hit a new two-year high as markets remain optimistic that OPEC will agree to an extension to the production cuts at its November 30 meeting. WTI oil has now reached US$58 per barrel.

Data Releases:

–    UK Second GDP Estimate 8:30pm AEDT

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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.