Share markets boosted after Summers leaves Fed Chairman race
Share Markets: There were plenty of developments for financial markets to digest overnight. Share markets were initially boosted by the news that Lawrence Summers withdrew as a candidate as Fed Chairman after Bernanke's term ends in January. Investors are hopeful that the current front-runner, Janet Yellen, would keep monetary policy easier for longer. Additionally, the deal over the weekend between Russia and the US eased concerns of a military strike against Syria. Shares in the US rose, but then slid as the day wore on. President Obama warned Congress he would not negotiate over an extension of the US debt ceiling. US Treasury has said the debt ceiling, the legislated debt limit of the US government, will need to be raised by mid-October, and could keep financial markets on edge in coming weeks.
The Dow and S&P500 ended 0.8% and 0.6% respectively higher, while the Nasdaq lost 0.1%.
Bonds: US treasuries rose (yields fell), supported by expectations that Yellen would be cautious in reducing the Federal Reserve's bond purchases. The drop in yields however, was limited ahead of the Federal Reserve's meeting this week, when it is widely expected to start slowing its bond purchases.
Foreign Exchange: Expectations that Yellen would now take the top job at the Fed was negative for the US dollar, although it pared losses as sentiment weakened. Emerging market currencies benefited from hopes that Fed monetary policy would be easier for longer. The Australian dollar also rose to an intraday high of 0.9394, but then weakened later on. Although further gains in the AUD are possible, recent rhetoric from the RBA is suggesting that the central bank would be uncomfortable with the AUD around current levels. Further guidance on RBA thinking could be revealed today with the release of the RBA minutes of the September meeting.
Commodities: Commodity prices were mixed, as investors weighed up easing geopolitical tensions and Summers withdrawal as a Fed chairman candidate. Oil prices fell on easing Middle East tensions. Gold prices weakened, despite the hopes that monetary policy would remain easy for longer. However, copper prices rose on improved risk appetite and the weaker US dollar.
Europe: Euro zone labour costs grew at a subdued annual pace of 0.9% in Q2, the slowest on record since the euro was formed in 1999.
New Zealand: WBC consumer confidence eased to 115.4 in Q3, from 116.6 in Q2. Consumers remain confident, however, with a reading above 100 indicating more consumers are optimists than pessimists.
United Kingdom: UK house prices rose 4.5% in the year to September, according to the Rightmove index of asking prices. This compares to the three-year high of 5.5% in the year to August.
United States: The NY Fed factory index fell from 8.2 to 6.3 in September, its lowest reading since May. However the detail was more positive with orders up from 0.2 to 2.4 and shipments up 1.5 to 16.4. However, jobs slipped from 10.8 to 7.5.
US industrial production rose a modest 0.4% in August. Factory output jumped 0.7%, led by autos (up 5.2%). Utilities were down 1.5%, their 5th consecutive monthly fall.
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