US Fed set to raise funds rate around June

Share Markets:

Global share markets markets were mixed on Friday.

In the US, the Dow fell 0.8% and the S&P500 was down 0.6% as the stronger US dollar weighed on the outlook for future US corporate earnings.

Speculation continues to mount that the US Federal Reserve will lift its Fed funds rate in the next few months, with June as the current 'favoured timing'.

This speculation weighed on market sentiment.

Markets were firmer in Europe as the European Central Bank began its larger scale purchases of European bonds.

The Dax rose 0.9%, the French CAC40 was up 0.5% but the FTSE100 fell 0.3%.

Interest Rates:

US government bond yields were little changed on Friday.

The ten year yield remained at 2.11% while the two year yield fell one basis point to 0.66%.

In Australia, ten and three year yields edged marginally higher with the three year government bond yield at 1.88%.

Foreign Exchange:

The US dollar index rose to a fresh 12 year high, moving higher against all the other major currencies.

The prospect of higher US interest rates combined with quantitative easing in Europe, the UK and Japan saw the US move higher on Friday.

The AUD begins the week at lower levels against the USD, yen, the pound and the NZD but is firmer against the euro than it was on Friday.

Commodities:

The price of oil fell 4.9% on Friday as the US dollar moved higher and as the International Energy Agency (IEA) warned that the global supply of oil is likely to grow.

The price of oil fell 10.4% over the week. Gold and copper prices were muted in comparison to oil with both edging higher on Friday.

Australia:

No domestic data to report from Friday.

China:

No major data released.

Europe:

Eurozone wholesale prices fell 2.1% over the year to February.

While energy prices played a part, weak demand also contributed to the outcome. It is expected that the ECB's bond purchase program will lift demand for goods and services over time.

Japan:

Industrial production in Japan rose 3.7% in the month but was still down 2.8% over the year.

New Zealand: 

The Business NZ manufacturing PMI rose from a revised 50.7 in January to 55.9 in February.

It was the highest in four months, recovering from the two-year low hit in January. 

United Kingdom:

No major data released.

United States:

Producer prices in the US fell 0.6% over the year to February.

Excluding the volatile items of food and energy, prices rose 1.0% over the year.

This was close to market expectations. With inflation still low, the case for a rapid increase in the Fed funds rate is difficult to make.

US consumer sentiment, as measured by the University of Michigan, fell in March. The headline index was down to 91.2 from 95.4 in February. 

The index is still well above its long term average and sits at around the levels seen in 2007.


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