The big news last week was the decision by the US Federal Reserve to keep rates on hold (at near zero), although it was probably the most fancied outcome. Although a surprise to most economists, financial markets had assigned only a 25% chance of a hike. The view remains that US rates will go up before the end of the year, but for now the Fed is “monitoring developments abroad” before pulling the trigger.
Locally, there has been very little change in the expectation of future rate cuts with the market still continuing to favour one more cut (refer chart below).
Cash rate pricing in future market
Apart from a magnificent victory by Japan over South Africa at the Rugby World Cup and the Crows losing (only just) to Hawthorn locally, the main news over the weekend was the various snippets of US Federal Reserve commentary together with the outcome of the elections in Greece. US equities fell sharply last Friday night as investors seemed to have taken on board the US Fed’s caution about the economic outlook and moved out of equities to the safe-haven of government bonds. So, hold on to your hats as our share market will open 1.5% lower this morning.