The US Federal Reserve lifted its interest rate target by 0.25% overnight, as expected. Simultaneously the board released higher expectations for growth and inflation, and a steeper path for interest rates in 2017. Bonds and gold were clobbered. Share markets and industrial commodities fell as traders contemplated the impact of a stronger USD.

The foreshadowed three 0.25% rate hikes next year is an advance on previous guidance. The bond market rout that followed means US ten year bond yields now sit more than 1% higher than the lows at 1.51% hit earlier this year. Industrial and consumer data also released overnight may have planted the seeds of the 2017 doom scenario. Higher inflation and interest rates and stubbornly low growth may make stagflation the word of the year.

The market shifting news occurs as the Australia 200 SPI futures contract expires this morning. Much larger than normal volumes of shares are likely to trade, giving large investors the liquidity required to re-shape their portfolios. How these fund managers react to the Fed’s moves and quickly closing liquidity window will determine today’s performance. The current indication of a fall of 39 points is likely the worst case scenario.

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