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Dovish Fed boosts stocks; Aussie tumbles on trade

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Dovish Fed boosts equities

By Arnaud Masset

Minutes of the US Federal Reserve Bank’s January meeting bumped equities across the globe slightly higher. On Thursday morning, futures on the S&P 500 rose to the highest level since 3 December, while European futures were also wearing green. The Eurostoxx 50 was up 0.25%, the German DAX 0.30% and the SMI 0.25%. Only the FTSE lost ground, down 0.40% amid Brexit uncertainties.

The Fed is worried about a slowing economy, not only in China but in general, and that too much tightening could derail the current dynamic. The Fed is leaving the door open for a further interest increase this year. The surprise was its much more dovish stance regarding the balance sheet reduction. The Fed is now considering backing off before the end of the year, or at least to stop reducing before the end of the year. Investors knew the balance sheet would not return to pre-crisis levels, but they were expecting it to become much smaller than USD 3 trillion. Fine, but with already low interest rates and a gigantic balance sheet, what tricks the Fed use in a crisis?

Aussie tumbles on trade

By Vincent-Frédéric Mivelaz

After Australia forbid Huawei Technologies from supplying a 5G mobile network on the grounds of national security risks in August 2018, Chinese authorities have lashed back. They banned Australian shipments of coal to Dalian and prolonged customs clearance in major ports. Australian exports face major losses. Yet the sanction seems limited, as inventories of low-sulphur coking coal used for Chinese steel remain low (1–2 months: Australia supplies 40+% of China’s demand. This will moderate the current fall in the Aussie. Short-term, AUD/USD (1.1331) is expected to continue its decline, approaching 1.1320.

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