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need2know: ASX to rise as uncertainty eases

Local shares are poised to open higher as the Fed’s rate hike decision and outlook met expectations, easing at least some uncertainty about what lies ahead in 2016.
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What you need2know

SPI futures up 21pts at 5044

AUD at 72.05 US cents

On Wall St, late, S&P 500 +0.8%, Dow +1.1%, Nasdaq +1.2%

In Europe, Stoxx 50 +0.2%, FTSE +0.7%, CAC +0.3%, DAX +0.2%

In London, BHP +2.3%, Rio +1.1%

Spot gold rose $US14.90 or 1.4% to $US1076.12/oz at 2.53pm NYC

Brent crude fell $US1.32 or 3.4% to $US37.13/bbl at 2.27pm NYC

Iron ore slipped 18 US cents to $US39.18 a dry metric ton

What’s on today

population data, labour market data, finance and wealth data; New Zealand GDP; Germany IFO index; UK retail sales; US leading index, current account, jobless claims

Stocks in focus

Credit Suisse is looking at the airline sector for 2016 and has more than half of its airline share recommendations at “outperform”. “The US remains our preferred geography overall, followed by [the Asia-Pacific region], Europe and Latin America in descending order of preference. THe broker thinks n airlines could see strong growth due to rising foreign tourist numbers, partly due to the attraction of the weak Aussie dollar.

Bell Potter initiates coverage on n Agricultural Co [AAC] with a “buy” rating and a $1.62 a share target price.

Packaging producer Orora received an “outperform” recommendation at Macquarie Wealth Management with a price target at $2.59 a share.

Currencies

Currency traders are on alert for a repeat of US dollar declines that followed the start of tightening cycles in 2004, 1999 and 1994 on speculation that a boost is already in the price. The Bloomberg gauge of the greenback has risen 8 per cent this year in anticipation of the Fed’s tightening.

Two-year note yields touched a five-year high after Fed officials lifted borrowing costs, which had been near zero since 2008. The Treasury 10-year note yield fell one basis point to 2.26 per cent, according to Bloomberg Bond Trader prices. Two-year note yields rose by one basis point to 0.98 per cent after touching 1.0167 per cent, rising above 1 per cent for the first time since 2010.

Commodities

Gold, silver and copper held earlier gains after the Fed rate decision.

Most metals are headed for an annual loss as signs of a strengthening US labour market had boosted speculation that the Fed would tighten monetary policy. Higher rates cut the appeal of metals, which don’t pay returns like competing assets.

Copper futures for March delivery advanced 0.8 per cent to $US2.0725 a pound on the Comex in New York in electronic trading.

Gold dropped seven of the past eight weeks and copper last month declined to the lowest since 2009 as improving economic data boosted the US dollar, curbing the appeal of metals as alternative assets.

The Philadelphia Stock Exchange Gold and Silver Index of 30 producers climbed 3.3 per cent. A gauge of 18 base-metals companies tracked by Bloomberg Intelligence rose 1.6 per cent.

United States

Wall Street was steady, holding gains after the Fed rate decision. “Everything seems to be as expected and all the markets seem to be hanging in there,” said Mark Kepner, an equity trader at Chatham, New Jersey-based Themis Trading. “The decision was unanimous, which was a big deal because you want to see a conviction here among everyone on the committee. And as far as where they expect rates to be at the end of next year, it’s also the same as expected.”

The Chicago Board Options Volatility Index sank 12 per cent to 18.39, the biggest drop in two weeks. Volatility surged last week as stocks had their worst period since August.

The Federal Open Market Committee unanimously voted to set the new target range for the federal funds rate at 0.25 per cent to 0.5 per cent, up from zero to 0.25 per cent. Policy makers separately forecast an appropriate rate of 1.375 per cent at the end of 2016, the same as September, implying four quarter-point increases in the target range next year, based on the median number from 17 officials.

“The committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate,” the FOMC said. “The actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.”

Europe

Investors pushed European stocks higher for a second day before the Federal Reserve’s much-awaited interest-rate decision, though equities pared gains in the last hour of trading. The Stoxx Europe 600 Index climbed 0.2 per cent at 4.30pm in London, trimming an advance of as much as 1 per cent. Car-related companies rose the most among industry groups, and miners had their biggest two-day jump in more than a month. Energy producers, leading the rally earlier, trimmed gains as oil slipped.

The Stoxx 600 rallied the most in two months on Tuesday, rebounding from its lowest level since October. It traded at 15.7 times estimated earnings, compared with 17.3 for the Standard & Poor’s 500 Index. After a 14 per cent jump from its September low through the end of November, the Stoxx 600 lost as much as 9.3 per cent as the European Central Bank’s additional stimulus fell short of expectations and a rout in commodities worsened. The index is heading for its worst December since 2002.

What happened yesterday

The n sharemarket snapped its six-day losing streak with its biggest rally in nearly four months. The benchmark S&P/ASX 200 rose 118.8 points, or 2.4 per cent, to the day’s high of 5028.4, reversing all of the previous two day’s losses and positioning the market over the key 5000 level as it awaited the decision and the accompanying comments from Fed chair Janet Yellen. The broader All Ordinaries closed 114.8 points or 2.3 per cent higher to 5078.7.

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