Some Fed Participants Concerned About Low Inflation

Both the Dow Jones and S&P 500 were up 0.18% overnight with both at a new record high. The main event of the night was the release of the minutes from the most recent FOMC meeting. After September’s Fed meeting the odds of a rate hike in December were as high as 92% according to the CME Fedwatch tool. The minutes, however, revealed that some FOMC members are concerned that the current low inflation is not transitory and may therefore be a problem for the Fed’s plans to continue raising rates (higher rates will tend to put downward pressure on inflation). As a result, the odds for a rate hike in December have dropped slightly to around 87%. The next CPI data will be out on Friday but it will be distorted by the effects of the hurricanes that recently made landfall in Texas and Florida.  

Gold was weaker leading into the FOMC minutes but the discovery that some members are concerned about low inflation led to a decent rally that pushed gold above US$1,290 per ounce. Conversely, the US dollar index sold off after the release of the minutes and then continued the downward trend that had persisted earlier in the day. As a result, the Australian dollar price of gold approached a one month high and is currently trading at AU$1,658.

The Fed has started allowing its bond portfolio to roll-off (i.e. it is not reinvesting the proceeds of maturing bonds) to the tune of $10bn per month. So far, bond yields have only increased slightly since the start of the roll-off at the beginning of October, however they did have a significant run-up in the latter half of September. The US 10-year yield is currently at 2.35%, lower than the one year high of 2.62% but significantly above Septembers low of 2.04%.

The ASX 200 had another strong day yesterday, closing 0.6% higher and bringing it towards the resistance level of the four-month trading range that we have been stuck in.  

Data Releases:

-    US PPI 11:30am AEDT

To view the Rivkin economic calendar and Local Markets matrix, members can click here.

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.

Complex product warning

This article contains information about foreign exchange contracts, which are considered complex financial products. Please click here to read ASIC's foreign exchange trading article before considering an investment in foreign exchange contracts. 

This article contains information about CFDs, which are considered complex financial products. Please click here to read ASIC's "Thinking of trading contracts for difference?" document before considering an investment in CFDs.
comments powered by Disqus

DISCLAIMER: Rivkin aims to provide clear and simple information to those visiting our website. If any part of this disclaimer does not make sense, please phone Rivkin and ask to speak with a member of our Dealing and Relationship Management Team. Rivkin provides general advice, securities and derivatives dealing services and accounting administration services. Rivkin does not provide advice that takes into account your, or anybody else's, investment objectives, financial situation or needs. We strongly suggest that you consult an independent, licenced financial advisor before acting upon any information contained on this website. Investing in and trading securities (such as shares listed on the ASX) and/or derivatives (such as Contracts for Difference or 'CFDs') carry financial risks. CFDs carry with them various additional risks that differ from more simple securities such as fully-paid company shares. Some of these risks include not owning the underlying instrument from which a price is being derived, settling trades 'over the counter' with a financial institution rather than on a stock exchange, and using leverage to gain access to trades that may have a higher face value than your initial deposit. This risk of leverage means that it is possible to lose more than your initial investment. Our aim is to create more life choices for our clients, which means improving the wealth of clients throughout many market cycles by nurturing a relationship spanning many years. If you are not comfortable with your understanding of the risks involved before using a Rivkin product and service, please contact our office to seek further information or a Product Disclosure Statement, or make an appointment to sit with one of our friendly financial experts. It is in our interest for your Rivkin experience to be a rewarding and comfortable one. Rivkin is a trading name of Rivkin Securities ABN 87123290602, which holds Australian Financial Services Licence No. 332 802.