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Focus on interest rates

Investor focus is firmly on the outlook for interest rates as markets wait on today’s CPI data, an announcement on who will get the job as Fed Chair, and more detail on the upcoming US tax reform package.

At current valuations, stock markets will be sensitive to bond yields and these are edging up in anticipation of the upcoming news. The US 10 year bond yield hit chart resistance at 2.42% last night while the Australian 10 year yield has opened higher at around 2.82% this morning.

Energy stocks should get support at the open this morning. The oil price rallied on reports of lower gasoline and heating oil inventories this week. Markets are also encouraged that there has not so far been any sign that recent higher prices are leading to an increase in US shale oil production.

Mining stocks will be supported by a bid tone to metals prices over night and this should help sustain a firm open for the ASX 200 as traders wait on release of the CPI data at 11.30

The Aussie Dollar weakened as traders continued to buy $US as a precaution against the possibility that John Taylor will get the nod as Fed Governor. This sees the Aussie heading into the CPI, testing the 78.6% Fibonacci retracement level around .777

Wesfarmers sales report this morning reflected the impact of price deflation in fresh food as well as ongoing price competition with Woolworths and Aldi.  While food deflation is likely to be temporary there is no relief in sight for a difficult competitive environment for supermarket operators.  

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