The US Federal Reserve lifted cash interest rates by 0.25% this morning in a well telegraphed move. The accompanying statement struck a balance, speaking to economic strength while acknowledging internal and external risks. Importantly, the Fed eased its stance somewhat but still expects a higher rate of increases in 2019 than current market pricing.

The US dollar rose, and industrial commodities and shares lifted as markets responded to the Fed’s rosier economic outlook and its lowered assessment of the “neutral rate”. (2.8%, down from 3%) Prices then reversed, and major indices plumbed session lows as market attention turned to the Fed’s higher estimate of the path of interest rates.

Market reactions illustrate the difficulty investors’ face in 2019. Good growth data is a positive for company earnings, and could support higher share prices. However better growth means higher interest rates faster, hurting corporate bottom lines and reducing valuations. This good news/bad news dynamic will likely continue driving markets, at least until the global monetary system gets closer to “normal” conditions. A further increase in volatility is expected, and market responses to data releases over the coming year may reflect positioning and sentiment as much as a cool assessment of the economic outlook.

The more defensive positioning of Asia Pacific markets, and lower local currencies, may see a more positive response from regional markets today. With the Fed out of the way investors will likely turn to Australian jobs data (f/c +20,000 jobs, unemployment 5%) and the Bank of England interest rate decision tonight. Although the BoE is not expected to move, traders will closely examine the growth and inflation estimates, as well as any language that echoes the Fed.

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