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The Overnight Report: Fed Says The Right Things

Daily Market Reports | Dec 12 2019

World Overnight
SPI Overnight (Dec) 6724.00 – 27.00 – 0.40%
S&P ASX 200 6752.60 + 45.70 0.68%
S&P500 3141.63 + 9.11 0.29%
Nasdaq Comp 8654.05 + 37.87 0.44%
DJIA 27911.30 + 29.58 0.11%
S&P500 VIX 14.99 – 0.69 – 4.40%
US 10-year yield 1.79 – 0.04 – 2.35%
USD Index 97.08 – 0.35 – 0.36%
FTSE100 7216.25 + 2.49 0.03%
DAX30 13146.74 + 76.02 0.58%

By Greg Peel

Say What?

Traders suggest the surprise rally for the ASX200 yesterday can only be explained by a very thin market. The bulk of participants are sitting on the sidelines, not prepared to dive in when the tariff question remains firmly in the air.

The Chinese seem convinced Sunday's tariff deadline will be extended, but indications from the White House are that there's no move to do that at this point. Wall Street closed slightly lower on Wednesday night and the local futures suggested up 2 points, anticipating a very quiet session.

The index chopped around in the morning but suddenly took off at lunchtime. Perhaps one big order came in from someone prepared to take the punt. If we need any confirmation that yesterday was a bit out of the box, we might note the futures are down -27 this morning.

We can at least attribute strength in the banks (+0.8%) to Westpac's ((WBC)) announcement it had successfully put away its share purchase plan to retail investors. The bank had been directed by ASIC to let off anyone who had applied prior to the AUSTRAC news, but it seems enough mums and dads were happy to pick up the shares at the discount price.

Couldn't get any worse, could it?

We can also attribute a 0.9% jump for consumer discretionary to rumours of a takeover offer for Webjet ((WEB)) about to be announced. That stock topped the leader board with a 9.6% gain.

The competition amongst brokers to set the highest target for CSL ((CSL)) continues, with Goldman Sachs moving to a market-topping $312. CSL rose 1.4%.

But it's a funny old rally when utilities (+1.7%) is the leader on the day, supported by telcos (+1.1%), and the only sector to close in the red is IT (-0.8%).

The futures are suggesting we'll all but square back up today, with Wall Street once again flattish after nothing unusual coming out of the Fed last night.

But until we get actual news on the tariffs, which may not be until Monday morning, the situation remains binary. We do, of course, have to get past tonight's UK election.


For the first time in five meetings, all FOMC members were in agreement last night as the Fed funds rate was left on hold at 1.50-1.75%, as expected. The rate is anticipated to remain on hold for the time being.

While there was nothing remarkable in the statement, commentators, and the market, responded to Powell's press conference at which he implied the Fed was ready to cut the rate again if necessary, but it would take something very material, such as a significant rise in inflation, for the Fed to ever hike again.

Once bitten, twice shy?

While Powell acknowledged the impact the trade war was having on the US and global economies, he insisted the Fed was not going to respond by chopping policy around on every little volatile twist in proceedings. To that end, we can assume that whatever happens in the next few days with regard the December tariffs, the Fed will simply be watching from the sidelines.

US stock indices rallied modestly on the press conference and the US ten-year bond rate dropped -4 basis points to 1.79%. The US dollar index is down -0.4% and gold is up ten dollars.

The Fed may be "on hold", but it's on hold with a dovish bent.

To that end, last night's US CPI data were shrugged off. The headline number rose 0.3% when 0.2% was expected, to 2.1% annual, up from 1.8%.

The core rate rose 0.2% to an unchanged 2.3%.

At any other time, these results might have triggered a sell-off on Wall Street in fear the Fed would soon be looking to hike. But aside from the Fed preferring the PCE measure of inflation, which remains stubbornly under 2%, it will take a lot more before the FOMC even contemplates a rate hike.

So tick one box. The next box to tick is tonight. Boris remains ahead in the polls but the gap has begun to narrow, despite what one has to admit from a non-partisan perspective is a cracker of an ad campaign. Google Johnson, Love Actually.

But of course it's all just a warm-up act for the headline performance, being those tariffs.


Spot Metals,Minerals & Energy Futures
Gold (oz) 1475.00 + 10.20 0.70%
Silver (oz) 16.85 + 0.18 1.08%
Copper (lb) 2.76 + 0.03 1.08%
Aluminium (lb) 0.80 + 0.01 0.73%
Lead (lb) 0.87 + 0.01 1.50%
Nickel (lb) 6.17 + 0.16 2.67%
Zinc (lb) 1.01 – 0.01 – 0.52%
West Texas Crude 58.87 – 0.51 – 0.86%
Brent Crude 63.86 – 0.50 – 0.78%
Iron Ore (t) futures 94.35 + 1.20 1.29%

LME traders also seem relatively confident the tariffs will be delayed, or simply like the fact the USMCA trade deal has been signed, or both.

One of the two weekly US crude inventory lotteries went the wrong way, hence the oils did not join in.

The Fed has gold up ten bucks.

And might we think forex traders were, yet again, short the Aussie going into the Fed meeting? The greenback's down -0.4% and the Aussie's up 1.0% at US$0.6882.


The SPI Overnight closed down -27 points or -0.4%.

All eyes on the UK tonight, rather overwhelming Christine Lagarde's first ECB meeting and press conference.

The RBA issues a bulletin today.

If you're looking for some excitement, the Westpac ((AGM)) is on today at Darling Harbour.

Elders ((ELD)) also holds its AGM.

The Australian share market over the past thirty days…

BLD BORAL Downgrade to Lighten from Hold Ord Minnett
MFG MAGELLAN FINANCIAL GROUP Upgrade to Hold from Sell Ord Minnett
NVX NOVONIX Upgrade to Speculative Buy from Hold Morgans
SYD SYDNEY AIRPORT Downgrade to Lighten from Hold Ord Minnett

For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website.  Click here. (Subscribers can access prices on the website.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's – see disclaimer on the website)

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