FTSE 100 goes into red ahead of US Federal Reserve conference

22 August, 2017, 20:05 | Author: Terri Saunders
  • Table 1

The Australian bonds traded almost flat Tuesday as investors await cues from the Federal Reserve's Jackson Hole Economic Policy Symposium scheduled for this Friday in Wyoming. "The surge in euro's price has been taking its toll on the domestic economy - as seen on other reports earlier this month - and with the European Central Bank still considering tapering this effect will only intensify making German exporting goods more expensive" commented ADS Securities Analyst, Konstantinos Anthis.

Though bets on a Fed policy change have been reduced in recent days given the general US political turmoil, expectations of a Fed hike may rise if Chair Janet Yellen emphasizes on Friday that the risks to inflation goals and financial stability require careful monitoring.

Two officials this week, including vice-chair William Dudley who has in the past taken a more dovish approach to policymaking, said the fact that financial conditions have recently eased despite Fed rate increases is a reason to keep plans to tighten policy in place.

In Australia it will be a quiet week on the data front but the focus will remain on the profit reporting season which will see its biggest week with around 100 major companies reporting. But with few particular dollar triggers amid a sparsely populated economic calendar, the market could be doing little more than getting their last licks in before a more active global calendar later in the week.

About $45 billion of euro-dollar currency options on the exchange rate will expire in the three days leading up to the Wyoming meeting.

Also, the markets were jittery after the start of annual military exercises by South Korean and USA forces angered North Korea, which denounced the joint drills as a step toward nuclear war.

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European Central Bank governor Mario Draghi, who will attend, may reiterate concerns about the strength of the euro.

Against the USA dollar, the Aussie continued to grind higher, undoubtedly helped by some enormous gains across base and bulk commodity markets.

Investors were also looking for some discussion on the outlook for inflation, which has refused to show up despite a global economic rebound. That would give Ms Yellen enough leeway to start preparing the market for a change - just as her predecessor, Ben Bernanke did on several occasions in speeches at the Jackson Hole conference. There was some support for sterling today as the British government further clarified its position on Brexit.

Draghi may therefore choose to strike a cautious tone - expressing optimism over the economy but steering clear of signaling his thoughts on tapering until September 7, when the Governing Council meets and he holds a press conference. However, he is expected to provide the public an update regarding its monetary stimulus. Will Yellen hint at a December rate hike?

"I therefore consider levels beyond (this month's) high of $1.1910 to be extremely risky ahead of Jackson Hole", she said.

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