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Fed removes a hurdle

The latest Fed decision combined with another round of soft US inflation data combined to remove one significant hurdle to the ASX 200’s year-end push to new highs. There remains a question mark over whether investors will grasp this opportunity.

Last night’s market action suggests that currency and bond markets had built some risk premium into pricing for the Fed decision. Stock markets on the other hand, were already priced for a Goldilocks outcome.

In the event, the currency markets concerns transpired to be misplaced.  The Fed’s statement and Janet Yellen’s press statement were entirely consistent with previous positions. This led to a sell-off in the US Dollar and some buying of bonds but little reaction in US stock markets, which closed, largely unchanged

Investors in Australian telco stocks will also be contemplating whether markets have already priced in NBN’s repricing announcement. This should help reduce the squeeze on retailers caught between the limits of what end customers are prepared to pay and the high cost of NBN’s capacity charges. However, stock markets have already rallied significantly prior to this news.

News that CBA has admitted to many of the money laundering charges laid against it by Austrac and will face a number of new charges, may be a headwind for the ASX 200 this morning. As CBA now intends to defend only a portion of the allegations against it, the question of whether the charges it has admitted to [RS1] can be viewed as a single incident arising from single operational failure appears to be a key issue for shareholders in assessing penalty risk for the bank.


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