Shares and bonds rallied and the US Dollar slipped overnight as investors seized on comments from the Federal Reserve that its tightening timetable is data dependent. A snowballing political crisis for the White House raised doubts about potential fiscal stimulus, and markets leapt to the conclusion that monetary policy is offering more support than previously thought. The buying seemed to ignore an interest rate hike from the Bank of Canada.
In testimony to Congress chair Janet Yellen merely re-iterated the Fed’s stance as well as expressing ongoing concerns about low inflation. Neither of these factors is new. However primary evidence of Trump family willingness to collude with Kremlin connected agents emboldened the White House’s political opponents. Stimulatory measures such as tax reform and infrastructure spending are now more difficult. This bad fiscal news was an important factor in overnight market action.
Local markets are set to lift on the news. Notably Hang Seng futures are pointing to a 200 point plus opening gain. Australia shares are also set to rally, with higher commodity prices adding to buoyancy. Australian consumer inflation expectations released this morning take on greater significance in light of yesterday’s disappointing confidence indicator. The Australian dollar is nearing 18 month highs against the Yen, and any further support for industrial metals may see it burst through the ceiling in coming sessions.