The prospect of the next increase in US interest rates is helping to entrench equity markets in a low volatility, stable trading range.
The potential for the Fed to gradually lead international central banks out of the current stimulus phase is making investors wary about pushing stocks up to higher valuations. At the same time, markets remain confident that the Fed’s tightening cycle will be very gradual. This means it will be some time before rates rise to the extent that they warrant lower equity valuations and is helping support stocks in the current trading range.
The stronger read on US consumer confidence last night indicates that consumers are not concerned about the US Presidential election. While this could be a moving feast, it’s a positive development for international equity markets at this stage and should help support US consumption.
The adjustment to Janet Yellen’s Jackson Hole speech is continuing to play out in currency markets. Leading into the speech; the $US Dollar was in the bottom half of the range that has now applied for over a year. This seems inappropriate given the likelihood of another Fed rate hike before the end of the year and more to follow next year.
The stronger US Dollar will be supportive for Australian stocks like CSL and James Hardie with large US investments.