The Fed put a December rate hike on the table, stocks rally

Quick Recap

A massive night of trade which has left stocks in the US and Europe sharply higher even though the Fed put a December rate hike right on the table. That seems to be because in highlighting the the move toward the rate hike the Fed also changed its language around where they see the US economy and global markets.

My colleague Akin Oyedele from Business Insider in the US wrote a nice little piece highlighting the changed rhetoric around consumers and business as well as offshore:

 The Fed moved from seeing household and business investment as increasing “modestly” to rising “at solid rates”. It also acknowledged that labour-market slack continues to shrink, despite the slowdown in job creation in August and September.

Global economic concerns have diminished. The Fed removed the sentence “recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.”

So stocks rallied and the US dollar swept the floor with the Euro and the Aussie which are sitting at 0.7097 and 1.0923 respectively. What’s going on here it seems is that these countries are the two candidates for central bank cuts. Australia, after the recent bank rate rises and then yesterday’s low CPI, is under pressure as traders guess the RBA might cut next Tuesday. In Europe we need to wait a little longer but moves are afoot to increase QE.

The other big story of the night was the ridiculously outsized move in crude which was more than 5% higher last night. Ostensibly it was because the Crude inventory report could have been worse. But that’s hard to fathom. In the end though shorts would have been squeezed hard. Gold is off on the USD rally.

US GDP tonight…it never ends.

The overnight scoreboard consumers and business os well as ofshore (8.57am AEDT):

• Dow Jones Industrials +1.13%
• Nasdaq Composite +1.3% to 5,095
• S&P 500 +1.18% to 2,090
• London (FTSE 100) +1.14% to 6,437
• Frankfurt (DAX) +1.31% to 10,8312
• Tokyo (Nikkei) +0.67% to 18,903
• Shanghai (composite) -1.72% to 3,375
• Hong Kong (Hang Seng) -0.8% to 22,956
• ASX Futures overnight (SPI December) +43 to 5,349
• AUDUSD: 0.7097
• EURUSD: 1.0927
• USDJPY: 121.15
• GBPUSD: 1.5263
• USDCAD: 1.3191
• Nymex Crude (front contract): $46.15
• Copper (US front contract): $2.3480
• Gold: $1,156
• Dalian Iron Ore (January): 357.5 (denominated in CNY)
• US 10 year bond rate: 2.09%
• Australian 10 year bond rate: 2.60%

On the day

On the data front today we get the import/export price index in Australia. In Japan, industrial production will be interesting and then tonight the big one in Europe is German unemployment. UK consumer credit and house prices are also out. In the US, it’s GDP and personal consumption and expenditure data.

CHART OF THE DAY: Euro, short term recovery but pressure remains

The low last night of 1.0894 is only a little over 40 pips from my original target from last week. So in the very short term I’m not overly bearish.

But, as you can see in this chart Euro could continue to fall substantially.