Morning Minutes

Steady Markets Digest Surprise RBA Rate Hike and Await Fed Decision

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Overnight, the Reserve Bank of Australia stunned the world with the announcement of a surprise 0.25% interest rate increase to 3.85%, resuming tightening after being on hold for its last two meetings. On this news, the Australian Dollar rallied 0.9% and Australia’s benchmark index, the S&P/ASX 200, dropped 0.9%.

Although Australia has not raised its overnight rate as high as the US, Canada, or New Zealand, this news has increased confidence in a widely expected 0.25% US interest rate increase from the Fed tomorrow afternoon, and increased uncertainty over whether the Fed will pause its tightening program or keep going.

Yesterday’s US economic news, which saw US construction spending (0.3% vs street -0.1%), ISM Manufacturing PMI (47.1 vs street 46.6) and ISM Prices Paid (53.2 vs street 50.4) all come in higher than expected, giving the Fed scope to continue raising interest rates if needed. US factory orders are due at 10:00 am EDT this morning, followed by US ADP payrolls at 8:15 am EDT tomorrow.

On the flip side, these numbers also indicate a steady to positive business environment. Coming off of a flat Monday for US indices, US index futures are trading between -0.2% and +0.1% this morning. Over in Europe, where Manufacturing PMI reports have come in similar to last month just below 50 and near expectations, major indices are also quiet on their return to trading from a long weekend.

Earnings season has resumed this morning with a series of positive results including Thomson Reuters* ($1.11 vs street $1.04), Pfizer ($1.23 vs street $0.98), and Uber (-$0.08 vs street -$0.09, up 8.4% premarket). Later today, results are due from Starbucks, Ford Motor, Marriott and AMD.

*Shares of Thomson Reuters are held in some portfolios managed by SIA Wealth Management.

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Colin Cieszynski, Chief Market Strategist

Colin Cieszynski, CFA, CMT
Chief Market Strategist
ccieszynski@siawm.com
+1 (647) 282-4428

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