Fed provides positive momentum in US, ASX futures up nearly 1%

Published at Jul 30, 2020, in Market Wrap

The ASX lacked direction yesterday with negative COVID related news driving the market.

The S&P/ASX 200 index (XJO) shed 0.2% or 14 points to close at 6006 points after being as high as 6045 points early in the day.

We should find today that some direction is provided by the positive outcomes of the Fed FOMC meeting which helped to drive the US market higher.

The following is an excerpt from the FOMC statement, highlighting the measures that are being taken and the Fed’s intention to ramp up as necessary to address the economic fallout from coronavirus.

‘’Overall financial conditions have improved in recent months, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.

‘’The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals.

‘’To support the flow of credit to households and businesses, over coming months the Federal Reserve will increase its holdings of Treasury securities and agency residential and commercial mortgage-backed securities at least at the current pace to sustain smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions.

‘’In addition, the Open Market Desk will continue to offer large-scale overnight and term repurchase agreement operations.’’

As a guide to how our markets are likely to respond today, the ASX SPI200 futures is up 54 points to 6029 points.

24 hours

The Asia-Pacific region was mixed yesterday with the Shanghai Composite the standout performer, gaining 2% or 66 points to close at 3294 points.

The mood was also positive in Hong Kong with the Hang Seng increasing 110 points to 24,883 points.

However, negative sentiment prevailed in Japan as the Nikkei 225 fell 260 points or more than 1% to close at 22,397 points.

European markets were lacklustre with the FTSE 100 closing virtually in line with the previous day at 6131 points.

It was a similar story in Germany with the DAX falling a nominal 13 points to close at 12,822 points.

However, the CAC 40 showed a bit of grit, gaining 30 points or 0.6% to close at 4958 points.

The US was the place to be with all indices responding positively to the Fed’s statement.

The Dow gained 0.6% to close at 26,539 points, while the NASDAQ surged 1.3% to 10,542 points.

The S&P 500 put on 40 points as it closed at 3258 points.

Gold remained in favour, up 20 points or 1% to US$1964 per ounce.

Now that the Fed has articulated its propensity to provide fiscal support where required, we could see continued interest in gold as it responds positively to stimulus measures such as a lowering in interest rates and other initiatives that place downward pressure on the US dollar.

The Brent Crude Oil Continuous Contract found support early in the session, and pushed up above US$44 per barrel before closing around that mark.

Iron ore was a big mover, up 3.7% to US$110 per tonne, while nickel and zinc were the best performers in the base metals space.

The latter continued its strong run, gaining another 1% to close at US$1.03 per pound, a six month high.

Nickel increased from US$6.14 per pound to US$6.25 per pound, the first time in more than six months that it has traded above US$6.20 per pound.

The Fed statement provided further impetus for the Australian dollar, and it is now fetching close to US$0.72.

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