That news offset both the trade news and a far more dovish interpretation of the discussion at the Federal Reserve’s December policy meeting.
“With regard to the outlook for monetary policy beyond this meeting, participants generally judged that some further gradual increases in the target range for the federal funds rate would most likely be consistent with a sustained economic expansion, strong labour market conditions, and inflation near 2 per cent over the medium term,” according to the statement released at 6am AEDT.
“With an increase in the target range at this meeting, the federal funds rate would be at or close to the lower end of the range of estimates of the longer-run neutral interest rate, and participants expressed that recent developments, including the volatility in financial markets and the increased concerns about global growth, made the appropriate extent and timing of future policy firming less clear than earlier.
“Against this backdrop, many participants expressed the view that, especially in an environment of muted inflation pressures, the committee could afford to be patient about further policy firming.”
Earlier overnight, four regional Fed presidents each expressed a willingness to delay further rate hikes until there was a clearer outlook for the US economy.
Last week Fed chairman Jerome Powell said policymakers were open to being patient, which was seen as a retreat from his comments after the December meeting.
Today’s Agenda
No local or overseas data scheduled
Fed chairman Jerome Powell to speak at midday local time at the Economic Club of Washington; Vice chairman Richard Clarida to give an evening local time speech on ‘Economic Outlook and Monetary Policy’ in New York
Market Highlights
SPI futures up 10 points 0.2% to 5738 8.45am AEDT
AUD +0.5% to 71.72 US cents (Overnight peak 71.94)
On Wall St: Dow +0.4% S&P 500 +0.4% Nasdaq +0.9%
In New York, BHP +0.6% Rio +1.1% Atlassian +1%
In Europe: Stoxx 50 +0.5% FTSE +0.7% CAC +0.8% DAX +0.8%
Spot gold +0.5% to $US1291.29 an ounce at 1.33pm New York time
Brent crude +4.4% to $US61.28 a barrel
US oil +4.9% to $US52.23 a barrel
Iron ore -0.8% to $US73.90 a tonne
Dalian iron ore -0.5% to 510 yuan
LME aluminium +0.6% to $US1852.5 a tonne
LME copper +0.9% to $US5958 a tonne
2-year yield: US 2.55% Australia 1.83%
5-year yield: US 2.55% Australia 1.97%
10-year yield: US 2.71% Australia 2.30% Germany 0.27%
US-Australia 10-year yield gap as of 8.51am AEDT: 41 basis points
From Today’s Financial Review
Breaking up union control over super: Unions and employers would be turfed out of the $600 billion default superannuation system and control handed to an expert panel under Productivity Commission recommendations.
Magellan soars, Platinum falls: A marked split in performance by Australia’s largest listed global fund managers during the second half of 2018 shows how exposure to the biggest investment themes of the year benefited or dented returns.
Chanticleer: Super system not broken but has cracks: Karen Chester’s final Productivity Commission report into the efficiency and competitiveness of Australia’s compulsory superannuation concludes the system is not broken, but it does have many significant flaws.
United States
China commits to buying more US goods: The Trump administration wrapped up the latest round of trade talks in Beijing, noting a commitment by China to buy more US agricultural goods, energy and manufactured items.
Fed seen edging closer to rate pause: A range of Fed policymakers said they could be patient about future interest rate increases, minutes from their December 18-19 policy meeting showed.
No urgency to lift US rates: Presidents of four of the 12 Fed regional banks said they wanted greater clarity on the state of the economy before extending the central bank’s rate hike campaign any further.
Gundlach waves buy-the-dip red flag: Jeffrey Gundlach is worried that investors are getting suckered into buying the dip in stocks, high-yield bonds and leveraged loans.
Wall Street rallied for a fourth session on Wednesday, propelled by Apple, chipmakers and other trade-sensitive stocks after signs of progress in trade talks between the United States and China.
The benchmark S&P 500, now in its longest daily winning streak in nearly four months, is up about 10 per cent from a 20-month low it touched around Christmas, lifted by hopes for a deal between the world’s two largest economies, which eased some worries over the impact of the trade spat on global growth.
“If you want to gauge how investors are viewing the trade talks, just watch tech, and semiconductors in particular,” said Jack Ablin, chief investment officer at Cresset Wealth Advisors in Chicago.
Shares of Boeing, which also has a large exposure to China, climbed 1 per cent, with the S&P industrial index gaining 0.6 per cent.
The energy index led other sectors with a 1.5 per cent jump, helped by oil prices at their highest levels in nearly a month.
The CBOE Volatility index, often referred to as an investor fear gauge, dropped half-a-point to a one-month low of 19.85.
Recession models are suggesting a higher probability of a US recession over the next 12 months and “flashing orange”, said Joachim Fels, managing director and global economic advisor at PIMCO, on an investor webcast Wednesday. Fels said China’s slowdown, which could accelerate to the downside, is at the top of his worry list.
Europe
May given Brexit ‘Plan B’ deadline: British lawmakers give Prime Minister Theresa May until January 21 to come up with a ‘Plan B’ for Brexit.
UK shares jumped to their highest in more than a month on Wednesday, joining a broad global rally on hopes of an end to the US-Sino trade row and as a positive update from Taylor Wimpey gave a much-needed boost to house-builders.
London’s blue-chip bourse ended the day 0.7 per cent higher after hitting its highest since December 5 and the mid-cap index rallied 1.3 per cent to levels not seen since December 4.
Taylor Wimpey maintained its 2018 results forecast and predicted solid 2019 sales. Its shares advanced 6.2 per cent and topped the blue-chip leader board in their best day since July 2016, taking peers Berkeley, Persimmon and Barratt with them.
Sainsbury’s recouped initial losses to close 2.3 per cent higher after its chief executive reiterated his confidence that its Asda takeover deal will be cleared. It had earlier slipped almost 3 per cent on a disappointing Christmas quarter update.
Asia
China commits to buying more US goods: The Trump administration wrapped up the latest round of trade talks in Beijing, noting a commitment by China to buy more US agricultural goods, energy and manufactured items.
Chinese stocks surged to the highest since December 19, lifted by signals Beijing plans to stimulate consumption and on hopes a trade deal will be reached with the US. But investors need more than a couple of decent days for encouragement after last year’s battering.
Car companies and home appliance makers led the charge, with Great Wall Motor top of the pile on the CSI 300 Index as it surged by the 10 per cent daily trading limit. Geely Automobile Holdings was the best performer on Hong Kong’s Hang Seng Index, climbing as much as 11 per cent, its biggest jump in two months. Qingdao Haier and Midea Group both advanced more than 5.5 per cent in Shanghai and Shenzhen.
The rally came after Ning Jizhe, vice chairman of China’s state planner, told television channel CCTV that the government will help boost buying of cars and household appliances. The push to lift consumption is set against the backdrop of a slowing Chinese economy and a trade dispute with the US.
“The trade concern is easing, but high-level agreement hasn’t been reached,” said Steven Leung, executive director at Uob Kay Hian (Hong Kong), adding that it would be best to wait until the end of this month or early February for a clearer picture. “China’s economy is still slowing and the stimulus measures are uncertain, so I think the market will keep range-bound.”
The CSI 300 Index, which slumped 25 per cent in 2018, ended Wednesday up 1 per cent, taking its advance this year to 2.3 per cent. The ChiNext gauge of small companies and tech stocks erased an earlier gain to close down 0.1 per cent. In Hong Kong, the Hang Seng Index powered 2.3 per cent higher, extending a rebound from its worst first trading day of a year since 1995.
Currencies
Bank of Canada turns reluctantly dovish: The Bank of Canada held its key interest rate at 1.75 per cent, citing the recent drop in the price of oil and concerns about global trade.
Bank of England policymakers will be “prudent not passive” after Britain leaves the European Union, keeping a close eye on exchange rate moves and other factors affecting inflation, governor Mark Carney said.
As parliament resumed debating May’s plans on Wednesday after a holiday pause, Carney warned the pound risked a further decline if markets judged economic ties between Britain and the EU were being weakened.
“The nature of that partnership is currently the subject of feverish debate in parliament and the prospects for sterling will depend heavily on how Brexit actually progresses,” he said in his first public comments of 2019.
Commodities
Oil prices jumped more than 4 per cent on hopes of a trade truce between the US and China, while OPEC-led crude output cuts also provided support. The day’s sharp gains extended a rally that has pushed prices up more than 13 per cent in 2019.
“After a dreadful December for risk markets, crude oil continues to catch a positive vibe,” said Stephen Innes at futures brokerage Oanda in Singapore.
Still, rising US output is dampening OPEC’s output cuts. Data from the US Energy Information Administration (EIA) showed domestic crude stockpiles fell less than expected last week. Gasoline and distillate inventories rose more than anticipated.
Morgan Stanley cut its 2019 oil price forecasts by more than 10 per cent. The bank said in a note it now expects Brent to average $US61 a barrel this year, and WTI to average around $US54 per barrel.
Saudi Aramco will issue bonds in the second quarter of 2019, Saudi Arabia’s Energy Minister Khalid al-Falih, adding that Aramco will release its financials and reserves when it issues the planned bonds, which will be denominated in US dollars.
Benchmark copper on the London Metal Exchange ended up 0.9 per cent at $US5958 a tonne. Earlier, the metal used widely in power and construction touched $US6008 a tonne, its highest since December 31.
“Depreciation of the Chinese currency and the stimulus effect will start to come through and Chinese data will start to improve, a major positive for industrial metals,” said Guy Wolf, global head of market analytics at brokerage Marex Spectron.
“Chinese data coming through confirms that growth slowed significantly, but this is all rearview mirror stuff.”
Copper is testing resistance at the 21-day moving average, currently around $US6008. A break above could see momentum pick up for a test of $US6110, where the 50- and 100-day moving averages appear to be converging.
Aluminium slipped 0.6 per cent to $US1852.5 a tonne.
Australian Sharemarket
Lendlease wins $2.7b Birmingham deal: Lendlease has won a £1.5 billion contract to redevelop a 17-hectare site in Britain’s second-largest city, continuing its run of successful bids for major British projects.
Banks face another challenging year: The prospect of a banking crisis this year could be as high as 40-50 per cent, according to JCP Investment Partners.
Australian shares closed higher for the third day in a row on Wednesday, continuing to hit month-long highs as good news from US-China trade talks buoyed the market.
The S&P/ASX 200 Index rose 1 per cent to 5778.3 points, while the All Ordinaries Index rose 0.95 per cent to 5838.4 points.
Street Talk
Quadrant PE whips gyms into shape, hires investment banks for sale
‘Go shop’ one to watch in 2019 M&A
Big investment banks pitch to float Kiwi port
with Reuters, Bloomberg, AAP
Comments? Questions? Let us know what you think of Before the Bell: timothy.moore@fairfaxmedia.com.au
from A Viral Update http://bit.ly/2H5YQln
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