As expected the US Fed kept interest rates unchanged as the FOMC concluded its two day meeting yesterday, but hints of a December rates rise saw equity benchmarks in the US rally strongly towards the close. While there was no press conference from Fed Chairwoman Janet Yellen after the interest rate decision the accompanying statement offered up a more hawkish outlook. Previous warnings regarding global macroeconomic and financial risk and their impact on the US economy were left out of this month’s statement which offered the strongest signal yet of a rates rise in December. Both the S&P 500 and DJIA had been buoyed earlier in the session by stronger corporate earnings before some modest profit taking in the run up to the announcement as investors braced themselves for further dovish commentary. However, many were caught off guard by the encouraging commentary, particularly regarding US household spending and investment which somewhat dampened the impact of slower than expected growth in the labour market, pushing both the S&P 500 and DJIA over a percentage point higher on the day.
The dollar benefited from renewed Fed hawkishness with the dollar index rallying firmly towards 97.800 yesterday after consolidating around below 97.000 the previous day. Early moves in the dollar index saw it slip back below 96.500 before the FOMC statement was released, after which the greenback rebounded strongly against a basket of major currencies, rallying over 1.3% from these lows to end the session at a two and a half month high. While the FOMC statement was bolstering the case for a December rates rise, mixed economic data over the past month, both domestic and international, could push a rates rise into 2016. Today’s release of US Q3 GDP data as well as initial weekly jobless claims and tomorrow’s release of Q3 employment and PMI data will be scrutinised by market participants while comments from Fed officials speaking at various events will be tracked closely.
Spot iron ore prices headed back below $50/tonne yesterday as demand for the steelmaking raw material from Chinese steel mills continued to decline. The TSI 62% Fe CFR Tianjin benchmark index settled at $49.50/tonne yesterday after struggling to hold onto levels towards $51/tonne at the start of the week as the fundamental outlook continued to deteriorate, breaching the lower bound of the $50-60/tonne trading range which has dominated trading activity for most of the second half of the year. With output from large miners ramping up steadily and demand for steel in China coming under intense pressure bank forecasts next year have been cut further, with average prices now expected to drop to $45/tonne in 2016.