Markets are battening down the hatches ahead of a number of events that could influence thinking on bond yields and stock market valuations.

In these circumstances, the gravitational pull of a steep departure from trend growth has produced the most significant decline in US markets for some time. This will flow through to a weak opening on the local market this morning.

The first of the major events facing markets over the next 24 hours will be this morning’s CPI release. The consensus market view is that the RBA will begin lifting rates by the end of this year. This expectation would be franked by an expected lift to 1.9% in underlying inflation. However, the Aussie Dollar has run hard over recent months. Traders may wait on upcoming US data before getting too bullish on Aussie

The first of the US events will be the State of the Union Address where the President is expected to talk about plans for infrastructure investment. A credible plan on infrastructure will be supportive of growth but add further stimulus to an already strong economy.

Further stimulus may feed into what the Fed has to say about monetary policy after the FOMC meeting. Additional stimulus will help the already rosy mood of the US consumer.  The high 125.4 read on Consumer Confidence confirms the positive mood implied by a drop in the savings rate to 2.4% and may have the Fed thinking that the need for pre-emptive action on interest rates is growing.

Treasury Wine Estates has clearly been one beneficiary of solid consumer confidence, posting EBITS growth well above expectations for the half year.  The market may view it unchanged guidance for the fully year as being conservative.

While markets are likely to be cautious this morning, selling may be relatively constrained. Global stocks have been in a clear uptrend and investors will be conscious of the old adage that the trend is your friend. Clear evidence of a major change in outlook is likely to be required to produce more than a relatively minor pull back in stock indices at this stage.

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