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Oil was the centre of attention today, following another surprise oil production cap which boosted energy and mining stocks, but concerns over the impending rate hike in the US is starting to weigh on investors minds.
The early rally ran out of steam around lunchtime, as Wall Street futures took a dive ahead of the FOMC meeting on Thursday.
Despite the oil price rocketing up 4.2 per cent, energy and mining stocks struggled to keep the ASX in the black, with financials giving up their early gains.
The benchmark S&P/ASX 200 Index inched 2 points higher to 5562.8 after adding as many as 20 points in early trade. The broader All Ordinaries Index climbed 3 points to 5619.1.
Resource giants BHP Billiton and Rio Tinto enjoyed some support, with BHP closing up 1.3 per cent, while Rio Tinto bumped up 0.2 per cent. However healthcare stocks were the biggest drag on the ASX, with the entire sector finishing 1.7 per cent lower.
"We have seen some pre-FOMC jitters emerging in US equity futures, the US dollar and bond yields," said Gary Huxtable, client advisor at Atlantic Pacific Securities.
"This has impacted equity markets across the region, with financials giving up the bulk of their early gains, and bond proxies being well supported."
In company news, shares in infant formula manufacturer Bellamy's were placed in a trading halt on Monday, pending an update on the company's finances. Investors have punished the company in recent weeks, following weaker-than-expected sales in China and the potential for more bad news looms large.
Main rival a2 Milk also experienced some selling with investors wary of the sector; the stock closed down 6.5 per cent to $2.16.
Sirtex Medical managed to claw back 3.6 per cent throughout Monday's session, after a sharp 37 per cent sell-off last Friday. The biotechnology business released a statement saying growth expectations were between four and six per cent, compared with growth last year of 15 per cent. Investors seemed to think the shares oversold.
Investors poured into travel insurance group Cover-More, after the board backed a $741 million takeover bid from Swiss insurance giant Zurich. The Zurich offer has been pitched to Cover-More shareholders at $1.95 a share. The stock closed 42 per cent higher to $1.87.
And lastly, Domino's Pizza shares rocketed up 1.9 per cent after UBS upgraded the company from neutral to buy. Investors have been wary of Domino's in recent months, speculating the stock might be overvalued. However the bank sees much higher growth potential and has increased its 12-month price target by 42 per cent from $56 to $79.70.
Investors have continued to sell bonds today as higher oil prices upped expectations for rising inflation in 2017. The yield on Australian 10-year bonds, which moves in the opposite direction to prices, climbed to 2.858 per cent on Monday after ending last week at 2.815 per cent.
Meanwhile, US 10-year Treasury yields are at their highest since June 2015, and lifted to 2.489 per cent on Monday from Friday night's close of 2.468 per cent. The rates on both bonds have jumped around 0.7 percentage points since US elections on November 8.
HSBC economists warned investors not to get carried away with an expected lift in headline inflation in the New Year as a result of higher oil prices in 2016:
"Given the plunge of crude earlier this year, annual price increases will look nasty by January, even if prices don't climb further from here. Things should however normalise by April or so," they write.
"True, a wild-card is whether OPEC cuts stick and whether they can drive crude even higher - but, then again, that's a supply shock which dampens demand and ultimately drags underlying inflation lower."
In other words, the upcoming lift in headline inflation, therefore, will be flattered by the very low comparison against a year earlier - known as "base effects", the HSBC analysts say.
"Everyone knows about them, but they still have a tendency to whip markets."
Crude oil prices are set to rise above $US60 per barrel over the coming months after 11 countries agreed to join the OPEC production cut on Sunday, after which Saudi Arabia announced it may cut output to below 10 million barrels per day.
But high prices could also rejuvenate the lagging US shale oil industry, analysts say, adding more supply and working against OPEC's plan starve the market.
The 11 countries, including Russia, Malaysia and Oman, have agreed to reduce output by 558,000 barrels per day two weeks after OPEC agreed to a landmark production cut, causing Brent and West Texas Intermediate, or WTI, crude to jump by over 4 per cent at $US56.68 and $U53.97, respectively, in late Monday trade.
Oil prices have surged by more than 50 per cent this year, and have doubled since Brent hit a low of US$27.88 in January.
"There's still upside to oil prices despite the rally this morning," said ANZ senior commodities strategist Daniel Hynes. "Certainly something in the mid-60s is quite achievable over the next few months."
Energy was the best performing sector on the ASX on Monday, lifting 3 per cent.
Mr Hynes said the decision by the non-OPEC producers in the early hours of Sunday morning, Australian time, "certainly surprised the market", and even "more so" Saudi Arabia's announcement just minutes later that it may cut production to below 10 million barrels per day.
This unilateral decision from the world's biggest crude producer marked a change of strategy for the Gulf kingdom and was evidence that it is less concerned about losing market share than in previous years, Mr Hynes said.
In June 2014, the Saudi government upped oil output in order to make American shale oil uncompetitive in response to a dwindling market share.
But prices have once again crossed the break-even point for US shale oil producers, and any ramp-up in production could spoil the effect of 22 OPEC-member and non-member countries' combined output cut.
This will eventually bring down the prices created by the cartel, but that time has yet to come, say analysts.
"The scale of cuts that have been announced over the past couple of weeks would essentially negate any increase from the US anyway and push the market into deficit," said Mr Hynes.
He added that the potential up-tick in the US shale oil industry would remain a medium-term risk, with the oil rig count already trending higher before any overseas cuts had been announced.
The warning signs were there for all to see ahead of a trading update last week that slashed hundreds of millions of dollars off the market worth of biotech outfit Sirtex Medical.
And even its 37 per cent share price fall on Friday hasn't encouraged Marc Sinatra, analyst at Lodge Partners, to shift from his long-standing "sell" recommendation on the company's shares.
"I've been bearish on the stock for a long, long time," said Mr Sinatra, who argued the primary market that Sirtex serves - cancer that has spread to the liver from the colon - was a small one.
"The failure of the SIRFLOX study last year is starting to bite," he said, referring to a disappointing research study that resulted in the halving of the Sirtex share price from more than $40 to below $20 for a time. That study showed no overall improvement in the survival rate for cancer patients from the company's cancer treatment.
Sirtex has three additional research studies, with the results due for release early next year.
"I don't think we have another Acrux," Mr Sinatra said, referring to the loss by another one-time popular biotech company of much of its business, "but it really needs most things to go in its favour to regain its former glory."
Acrux, which makes a testosterone treatment, has a sharemarket worth of just $50 million, down from more than $750 million a few years back due to regulatory changes in the US, its key market.
On Friday, Sirtex warned of weak sales, reversing investor expectations of continued double-digit growth.
One investor not spooked by Friday's warning was Peter Hall, the founder of Hunter Hall Investments, who has made tens of millions of dollars from Sirtex shares over the years. He stepped into the sharemarket on Friday to top up his holding of Sirtex shares for his investment funds.
"We bought at $15.57 on Friday. At that price, it is not a value stock, but it is quite cheap," Mr Hall told BusinessDay.
ASIC chairman Greg Medcraft has said its new artificial intelligence software will be targeted at rooting out fake news on social media, as concerns rise that it is already being used to manipulate the sharemarket.
Mr Medcraft told The AFR that ASIC's recently announced push to use artificial intelligence to detect rogue market behaviour would include a focus on people creating fake news to circulate on social media, aimed at pumping up stocks.
The issue of bogus news stories on social media received wide attention following assertions it had had a significant impact on the 2016 US Presidential race. However, experts warned Australian investors are already facing the problem of deciphering the real from the made-up online.
"ASIC is rapidly moving into the use of advanced technology methods to detect aberrant behaviour, including breaches of the law, at an earlier stage," Mr Medcraft said, when asked about the use of fake news as a market manipulation tool.
"This is in addition to detecting such behaviour after the fact and seeking to take punitive or compensatory action."
Mr Medcraft said the threat raised by digital market manipulation was real and that the new suite of technologies in use and under development would help build a more "pre-emptive" system and improve the market's "cyber resilience".
But Australasian Investor Relations Association chief executive Ian Matheson warned that it would be difficult to track down and police culprits offshore, and the problem had been rising in recent years.
"Just after the GFC there was a bumper of false rumours relating to the sharemarket and listed companies put into the market, particularly by offshore hedge funds," Mr Matheson said.
"A number of these were reported to ASIC and they set up a rumour hotline. I'm not sure if it's been used a lot since that time but it's certainly a concern to listed companies that false information can be fed into the mainstream media through the ether – through social media."
Have any of you ever come across clearly false information regarding individual stocks or the like in your social media feeds?
The wind has been taken out of the early ASX rally, with strength in the mining and energy sectors just keeping the market in the black.
The ASX 200 is only a couple of points higher at 5562, losing around 20 points in short order in a move that looks coordinated with a similar development in Wall St futures markets.
The big banks are a big part of that turnaround after starting the day higher all but CBA are now lower. CSL is having a particularly hard time of it, down 3 per cent.
Resources are propping up the ASX.
BHP is up 1.3 per cent thanks to its energy exposure, with oil jumping 4.2 per cent this morning following news of more deals to reduce global crude production. Woodside is up 3 per cent and Origin 3.4 per cent, while Santos has added 4.3 per cent and Oil Search 3.3 per cent.
Chinese iron ore futures are flying, up over 5 per cent, helping Rio lift 0.6 per cent and Fortescue 2.8 per cent.
Gold miners are having a much tougher time, with bond yields pushing firmly higher this morning, reducing the appeal of the non-income producing precious metal as an investment. Newcrest is down 2.9 per cent.
There is also some corporate news around, with Cover-More spiking 43 per cent after saying it had accepted a takeover offer from insurance giant Zurich. Less happy news for Bellamy's shareholders, with the stock in a trading halt as it prepares to provide what is widely assumed is further bad news around business conditions.
Finally, Flight Centre has hit some turbulence, dropping 8.6 per cent to be the day's worst. To blame is likely an unflattering analyst report from Morgan Stanley, in which the broker's analysts downgraded the stock to underperform. International flight price deflation is accelerating and likely to continue, they said, implying Flight Centre's own guidance is "too bullish".
Sirtex is near the day's best, up 4.7 per cent. But that's a drop in the crater - the stock dropped near 40 per cent on Friday.
Martin Currie's Reece Birtles, who oversees the asset manager's equity income strategy, does not care about beating the market. What he is fixated on is the $7.50 in income derived from dividends and franking credits that he can deliver off $100 invested today.
So as a holder of Tatts, which has a strong free cashflow profile to suit his objectives, accepting the Tabcorp offer which comes mostly in the form of Tabcorp shares, invites some deeper thinking.
"We believe Tattersalls has an extremely strong lottery business, near monopoly, that has extremely valuable free cashflow that would grow over time in a low-risk manner. The yield was attractive and the stock's undervalued, clearly Tabcorp's recognised that and that's not necessarily over," he says.
"We do care about risks. Tattersall's doesn't have the risk of if something happened in terms of a fine. Do we want to accept that Tabcorp risk? We're not sure." He believes the jewel in the crown is Tatts' lotteries business, not the wagering assets.
Martin Currie owns Seven Group because it is exposed to volume growth in the resources industry through its Caterpillar business. Birtles' only resource or energy exposure is a small position in Woodside Petroleum because he doesn't think the earnings volatility of commodity prices is a good fit for an income focus.
"The earnings variability of BHP and Rio and Woodside and Fortescue is huge," he says. "Australia's market has way too much weight to resources. How much exposure do [retirees] need to volatile companies that are investing a lot of capital?"
He also owns Duet, which is the target of a cash takeover offer, and JB Hi-Fi because it doesn't need to sink a lot of capital to make money.
"Qantas might be a great stock but the return on invested capital is 6 or 7 per cent and passengers are growing 6 or 7 per cent. Every dollar you make is structurally going into buying planes. Whereas if you're JB Hi-Fi, you have a strong brand, low cost position. You might have a thin margin of 5 per cent but your invested capital is very low so your return on equity's extremely high.
"Every dollar you make is essentially free cashflow."
As we flagged earlier, baby formula marketer Bellamy's Australia has entered a trading halt after a horror 10 days in which its shares were smashed due to weaker-than-expected sales in China and fears of more bad news.
The company has said it will make an announcement by Wednesday regarding "the impact of trading conditions on the company's expected financial results."
Questions are being asked about how much the board and chief executive knew about the company's change in fortunes ahead of last week's announcement, and whether Bellamy's has fulfilled its continuous disclosure obligations
On Saturday, BusinessDay revealed confidential supermarket and pharmacy sales data showed Bellamy's market share plunged from 25 per cent of the domestic infant formula sales in April to just 12 per cent by October.
More than 95 per cent of the formula sold in Australia is bought from supermarkets or pharmacies, and more than half of it ends up in China.
Chief executive Laura McBain and chairman Rob Woolley sold down their stakes in August, at $14.55 and $14.60 a share - more than double the company's current price.
Dean Fergie is director and portfolio manager of Cyan Investment Management. The fund manager sold its Bellamy's shares on the downgrade and said of the trading halt he would be "very surprised if it's good news".
"I can only think that given the unexpected nature of the first revenue guidance, it might suggest that the company is not as fully across their numbers as one might otherwise hope," he said. "That or there has been a banking covenant breach."
"The EBITDA drop might be an issue for the banks."
Another fund manager said, "Surely they can't have another downgrade only two weeks after the last, can they?"
"Maybe they looked under someone's desk and found more unsold tins of formula," he quipped.
Writes the SMH's economics editor Ross Gittins:
The latest stage in the politicisation of Treasury came last week with its publication of a report on The Effectiveness of Federal Fiscal Policy, commissioned from Professor Tony Makin, of Griffith University.
If you've never heard of Makin's work, you'll be surprised to learn he regards fiscal policy as utterly ineffective and probably counterproductive.
If you have heard of it, you won't be. Makin's views on the ineffectiveness of fiscal "activism" – using budgetary stimulus to assist recovery during recessions – are well known, unchanged and unchanging.
He's the go-to guy for anyone who'd like an independent report asserting that fiscal policy doesn't work – never has and never could.
In all the decades since Makin made up his mind on this question, all the academic theorising and empirical evidence from the real world have served only to confirm the wisdom of that decision.
His paper's "review" starts by rubbishing that deluded fool John Maynard Keynes – who, presumably, will never attain the intellectual heights reached by Makin and his mates – and praising such giants of the profession as Robert Mundell, Marcus Fleming, Robert Lucas and Thomas Sargent.
It then reprises Makin's well-rehearsed argument that the Rudd government's budgetary stimulus – undertaken at the urging of the then Treasury secretary, Dr Ken Henry – was unnecessary and unhelpful.
And finally it does a lot of hand-wringing about the rapid growth in the public debt (especially when you exaggerate the size of the debt by quoting gross rather than net, a trick Makin seems to have learnt from Barnaby Joyce), the burden being left to our children, and the need to make reducing recurrent government spending our top fiscal priority.
One small problem – the last time Makin ran his anti-activism line, in a paper commissioned by the Mining Council, Treasury issued a detailed refutation. Makin seems to have taken none of its substantive criticisms into account in his Treasury-commissioned version.
This is a measure of the extent to which politicisation has changed Treasury's tune.
Aged care operator Estia Health has launched a $137 million capital raising and dropped its interim dividend in a bid to bolster its beleaguered finances.
Macquarie Capital, which conducted a strategic review of the embattled operator, is handling the raising which it will also fully underwrite.
With that review now concluded, Estia's chairman Pat Grier is stepping back to become a non-executive director.
Fellow board member Dr Gary Weiss will take the chair from the start of 2017.
The $136.8 million raising is being offered at $2.10, a 21.6 per cent discount to its closing price last week.
Institutional investors are expected to account for around 55 per cent of that total, with the remainder being offered to the retail register.
Aside from $5.8 million in transaction costs, the raising is devoted to reducing Estia's borrowings.
Core debt will be cut to $85.5 million while net debt will be reduced to $143 million.
The operator's leverage is currently running at 2.41 times. After the raising that will be cut to a more modest 1.62 times, well within a new target gearing of 1.5 to 1.8 times.
"Today's announcements put Estia on a fresh footing with a strengthened balance sheet," said chief executive Norah Barlow.
"We will continue with our greenfield and brownfield development pipeline and refurbishment opportunities program, but under a more conservative business plan and growth agenda.
"We have also identified some non-core assets that will be divested and we will continue to review our portfolio to ensure that we have the right mix of assets going forward."
Along with its listed peers, Japara Healthcare and Regis Healthcare, Estia has come under pressure this year after the federal government announced cuts to the sector.
Already Estia has unveiled two earnings downgrades while its founder Peter Arvanitis and other key staff including a previous chief executive left the company.Estia has come under closer scrutiny as its net debt approached its borrowing ceiling.
Gas pipeline major APA Group has taken its first firm step into solar power, signing a 12-year electricity sales contract that will underpin a $50 million project in Western Australia.
The contract with WA retailer Synergy will allow for the construction of the 20 megawatt Emu Downs solar project adjacent to APA's existing 80 MW Emu Downs wind farm. Construction will start in January.
APA chief executive Mick McCormack has been voicing ambitions to develop into solar power as he explores growth opportunities for the company which is already the country's dominant gas transmission operator. In August, he pointed to $1.5 billion in potential growth projects over the next three years, including about $500 million in renewable energy and power generation.
The venture will also be supported by $5.5 million of funding from the Australian Renewable Energy Agency, as advised in September.
Mr McCormack said that the project is "the type of energy infrastructure asset that APA will continue to invest in."
"The expansion of APA's existing Emu Downs Wind Farm with the complimentary solar generation makes logical and financial sense both from a power generation profile, as well as sharing transmission connection infrastructure," Mr McCormack said.
Citigroup analyst Michael Dargue has pointed out that renewable energy investments are likely to offer APA lower returns than its core pipeline business.
He said a fully contracted renewable energy project could generate about 8 per cent rate of return when geared at 60-70 per cent. But as APA's current return on equity is about 9 per cent, the expansion into renewables is likely "dilute to returns," Mr Dargue told clients in a note in August.
APA shares are up 0.6 per cent at $8.09.
Travel insurance re-seller Cover-More has agreed to a $741 million takeover offer from Switzerland's Zurich Insurance Group.
Under the deal, Zurich will acquire Cover-More for $1.95 cash a share, a 48 per cent premium to the target's last closing price of $1.32 on Friday.
It marks Zurich's second acquisition in the Australian insurance market this year. Zurich in March purchased Macquarie Group's life insurance division for an undisclosed sum.
Cover-More chairman Louis Carroll said the board had concluded unanimously that the sale at a significant premium to the market price was an attractive outcome for shareholders. He said Zurich had proposed to operate Cover-More as a discrete business and retain the existing management team.
The deal will be executed via a scheme of arrangement requiring the approval of 75 per cent of Cover-More shareholders at a meeting the insurer said was expected to be held in late March or early April 2017.
Cover-More said it expected to deliver EBITDA in the range of $54-57 million for the financial year ended June 30, in line with the $54.5 million forecast by six analysts polled by Thomson Reuters.
In reaching November's landmark agreement to reduce oil production, OPEC members laboured for months to overcome their mutual suspicions and frequent mistrust.
Talk of further cuts over the weekend has this morning helped push oil prices to new highs for 2016.
But reaching the deal could turn out to be the easy part - enforcing it could be another matter.
The Organisation for the Petroleum Exporting Countries has a history of failing to enforce its own production limits, according to numerous energy analysts and former OPEC officials, writes the Wall Street Journal. The cartel's agreements usually spell out exactly how many barrels a day each member must cut. But ensuring that everyone abides by these quotas has been supported only by a fragile honour system, with OPEC having no official mechanism for punishing members that stray from their pledges.
In 17 production cuts since 1982, OPEC members have reduced output by an average of just 60 per cent of their commitments, according to Goldman Sachs. OPEC exceeded its quota by an average of 883,000 barrels a day on average from 2000 to 2008, according to Morgan Stanley.
"The unfortunate part is we tend to cheat," Ali al-Naimi, Saudi Arabia's former oil minister, said of OPEC members at a Washington, DC, event this month.
"There is still more supply than demand. And I believe if they make a concerted effort to reduce—everybody—there will be a balance. But that remains to be seen," he said.
Shares are recording modest gains in early trade with most of the excitement confined to energy stocks, which are getting a nice boost after oil jumped 5 per cent in the first session of trade after Saudi Arabia said it would cut production further than expected.
The ASX 200 is up 20 points or 0.4 per cent at 5581, with oil fetching $US57 a barrel and reclaiming 17-month highs. Crude's price is up by close to a quarter over the past two weeks and by more than 50 per cent this year.
BHP is up 1.3 per cent , while Woodside is up 2.7 per cent, Origin 2.8 per cent, Santos 3.7 per cent and Oil Search 3.1 per cent.
The big miners are doing well, with Rio climbing 0.6 per cent and Fortescue 2.4 per cent. The major banks are all up, but range from a 0.9 per cen gain in NAB to a 0.1 per cent gain in Westpac. Macquarie is up 1.2 per cent.
Woolies and Wesfarmers are both a little lower. Healthcare and gold miners are down.
Among the early winners are Sirtex, which is rebounding a little after losing a third of its market cap on Friday, while Domino's has jumped 5.4 per cent after being raised to buy at UBS this morning.
A2 Milk is off 3.5 per cent, perhaps in reflected nervousness from Bellamy's trading halt ahead of a earnings update.
Bellamy's shares have been halted ahead of a trading update.
The company is to make an updated announcement on the"impact of trading conditions on the company's expected financial results," it says in statement to ASX.
Bellamy's shares plunged 44 per cent earlier this month after it flagged revenue below estimates on weak volume from China. The stock last fetched $6.68.
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OPEC are the oil masters again, writes IG analyst Gary Burton:
There will be a push for Australian oilers including BHP Billiton this morning, with a chain of announcements that signal Saudi Arabia is trying to lift oil prices above $US60 a barrel, and perhaps closer to $US70 a barrel.
Saudi Arabia is also preparing a partial flotation of its crown jewel, state-owned oil company Saudi Aramco, in 2018, higher oil prices will make this significantly more attractive for investors. The downside is this move towards higher prices may not work, as it flies in the face of the resurgence of US shale drilling from Texas to North Dakota so volatility in the coming months will be news dependant. This agreement between OPEC and non-OPEC counties is the first in 15 years with potential cut of 300,000 barrels a day, showing a massive statement of intent to the market that they want to rebalance the oversupply. This adds to the reflation trade happening in global equity markets.
With our Aussie 200 tentatively pushing back to the 5600 point level, a lift in base commodities continues alongside a further lift in banking yield stocks.
This is now starting to include the insurance companies AMP and QBE on the expectation of higher bond yields in the US and Australia. The Australian market has rallied 320 points, or 6 per cent, since Trump's election win. It is expected the market will open 23 points higher at 5583, however, with the weekend's events, strong gains are expected in BHP, Woodside and Santos, with the potential to lift the Index to 5600 points.
A great way to start the week leading into a potential Christmas rally seasonally expected in the second or third week of December.
Here are the market highlights heading into the ASX open:
- SPI futures up 23 points or 0.4% to 5582
- AUD -0.1% to 74.50 US cents
- On Wall St, Dow +0.7%, S&P 500 +0.6%, Nasdaq +0.5%
- In New York, BHP -1.1% (up 49% year to date), Rio -2.3% (up 41% year to date)
- In Europe, Stoxx 50 +0.4%, FTSE +0.3%, CAC +0.6%, DAX +0.2%
- Spot gold -0.9% to $US1159.86 an ounce
- Brent crude +1% to $US54.40 a barrel
- Iron ore down 12 US cents to $US81.66 a tonne
- LME aluminium +1.5% to $US1750 a tonne
- LME copper +0.7% to $US5825 a tonne
- Steaming coal +0.4% to $US84.35/tonne, metallurgical coal didn't trade and last fetched $US280
- 10-year bond yields: US 2.47%, Germany 0.36%, Australia 2.81%
In company news:
- Macau denies report it's cutting the daily ATM withdrawal limit. Crown fell 5.3% on Friday following the reports.
- BHP boss says rally in iron ore and coal won't last
- AGL boss says LNG glut will last well into the next decade
- Carsales is planning a one-off, non-cash impairment charge of around $7m
- OzForex trades ex-dividend
In analyst news and views:
- QBE raised to buy at Shaw
- Domino's raised to buy at UBS
- IAG cut to hold at Bell Potter
- Flexigroup cut to hold at Morningstar
- Sirtex raised to buy from underperform at APP
- Northern Star and Saracen Minerals raised to buy at Bailleu Holst
- AWE raised to buy at Cannacord
- Medical Developments raised to new buy at Moelis
A decision by the US Federal Reserve this week to not raise rates would be "dreadful", as investors and economists consider an increase a foregone conclusion and have now shifted their focus to finding clues on whether the Fed will tighten faster than expected in 2017.
After lifting rates for the first time in almost a decade this time last year, the Fed has failed to hike further, worried that it could derail what has been a lengthy but frail economic recovery since the global financial crisis of 2008.
But the market's unexpectedly enthusiastic response to Donald Trump's surprise US election victory on November 8 has removed what was seen as the last possible impediment to a quarter percentage point lift in the official US Fed funds rate to 0.5-0.75 per cent, from 0.25-0.5 per cent.
Reflecting this, fixed-income traders are pricing in a 100 per cent chance of a rate rise, and the reaction in markets would be one of shock if Thursday morning's decision did not play out as expected.
"I think it would be dreadful if they didn't [raise rates]," ANZ rates strategist Martin Whetton said. "In terms of being a transparent central bank, it would be the wrong message to send."
With a rate rise locked in, economists are now focused on what they can glean from the Fed's messaging about the path of interest rates into 2017 and beyond, particularly in light of the US President-elect's expected stimulatory agenda of infrastructure spending and tax rate cuts.
ANZ economists expect a hike in June and December, in line with both the market consensus and the Fed's own median prediction of one or two hikes.
"I would say most of us in the market believe the risk is they say, 'Hey, we are looking at two, maybe three, hikes next year,' and in that environment you are talking a stronger US dollar and you would definitely see further weakness in the bond market," Mr Whetton said.
Saudi Arabia signalled it's ready to cut oil production more than expected, a surprise announcement made minutes after Russia and several non-other OPEC countries pledged to curb output next year.
Taken together, OPEC's first deal with its rivals since 2001 and the Saudi comments represent a forceful effort by producers to wrest back control of the global oil market, depressed by persistent oversupply and record inventories.
"This is shock and awe by Saudi Arabia," said Amrita Sen, chief oil analyst at Energy Aspects in London. "It shows the commitment of Riyadh to rebalance the market and should end concerns about OPEC delivering the deal."
Oil prices have surged more than 15 per cent since OPEC announced Nov. 30 it will cut production for the first time in eight years, rising this week briefly above $US55. The price rise has propelled the shares of energy groups from Exxon Mobil Corp. to shale firms such as Continental Resources Inc.
Riyadh agreed with OPEC on Nov. 30 to cut its production to 10.06 million barrels a day, down from a record high of nearly 10.7 million barrels in July.
"I can tell you with absolute certainty that effective Jan. 1 we're going to cut and cut substantially to be below the level that we have committed to on Nov. 30," Saudi oil minister Khalid al-Falih said after the weekend's meeting.
The Saudi minister said he was ready to cut below the psychologically significant level of 10 millions barrels a day -- a level it has sustained since March 2015 -- depending on market conditions.
Al-Falih made his announcement after non-OPEC countries agreed to reduce production by 558,000 barrels a day, suggesting he had been waiting for the deal before committing to further cuts. The non-OPEC reduction is equal to the anticipated demand growth next year in China and India, according to data from the International Energy Agency.
"The deal speaks volumes about the Saudi commitment to rebalance the market," said Yasser Elguindi, a veteran OPEC watcher with consultant Medley Global Advisors. "No-one is talking any more about $US30 a barrel oil."
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