Full steam ahead: US to allow inflation to run

By Jonathan Jackson. Published at Aug 28, 2020, in Market Wrap

The ASX looked set to open lower today after the US Federal Reserve made a historic policy shift in regard to interest rates.

Fed chairman Jay Powell revealed in his annual Jackson Hole address that the Fed would now allow for inflation to rise “modestly” above its 2% target for “some time” as the central bank attempts to revive growth and support the jobs market.

The move sent Treasuries higher and saw the US yield curve — the difference between 10-year and two-year bonds yield — rise to its steepest since the early June.

The Financials sector got boost from the fed aggressive new strategy, lifting the Dow (+0.6%) and the S&P 500 (+0.2%). The Nasdaq ended the session down 0.3%.

Last week's initial US jobless claims remain above the 1 million mark, suggesting there’s still a long way to go before a return to full employment. However, a vaccine would no doubt quicken that recovery. After winning US approval to market a cheap, portable, rapid COVID-19 antigen test Abbott Laboratories jumped 7.8%.

In Europe, markets largely ended lower, weighed down by resource stocks. The FTSE 100 was down 0.75 to 5999 points, the DAX down0.71% to 13,096 points, and the CAC 40 was down 0.64% to 5015 points.

On the commodities front, iron ore lost 1.6% to $US122.22 a tonne, while spot gold was gained 0.11% to $US1934.40 an ounce.

Oil is also lower, with Brent crude losing 1.2% to $US45.08 a barrel, and US. (WTI) oil -0.9% to $US42.98 a barrel.

On the ASX, the ASX 200 finished 0.2% higher yesterday, having pulled back late in the session ahead of the Fed meeting overnight.

The big miners had a good session: Fortescue Metals shares hit a new record high $19.53 on improved iron ore prices, while BHP and Rio Tinto were also strong.

Afterpay reported a 97% increase in revenue to $519.2 million, which nearly halved its net loss to $22.9 million. The stock closed at $91.26. Rival Zip Co close 4.7% lower at $9.20.

Woolworths results were also well received with the stock jumping 2.8% to $40.38 on its full-year result.

As for health stocks, CSL ended the day higher, up 0.9 to $293.55, while Mesoblast hit a new six-year high, gaining 1% to $5.20.

Today marks the last full day of earnings season with companies due to report including Costa Group, Harvey Norman, and Village Roadshow.

The Australian dollar is currently buying 72.58 US cents.

The ASX futures are down 9 points at 8:30 AEST.

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