Tag Archives: FED

USD Off To Slower Start In August

Here’s today’s ‘Just A Minute’ bringing you a 60 second summary of what’s happening in the financial markets:

WHAT WE’RE WATCHING TODAY

Dollar Gets Off To Slower Start In August

The U.S. dollar got off to a cooler start today after experiencing its biggest one-day fall in almost a month after a series of economic data led markets to push back expectations for the start of the Federal Reserve’s rate-tightening cycle. U.S. jobs growth slowed in July, the unemployment rate unexpectedly edged up and inflation was restrained, a mix of figures that may indicate the Fed will keep interest rates low for longer. The dollar index was last at 81.321 .DXY having retreated from a 10 1/2 month peak of 81.573. It had fallen 0.2 percent on Friday, a modest decline but still the biggest one-day fall in over three weeks. The index had rallied more than 2 percent in July as improving U.S. data convinced markets that an interest rate rise could be less than 12 months away. That allowed the euro to push back above $1.3400 EUR and off an eight month trough of $1.3366 plumbed last week. Against the yen, the dollar recoiled to 102.56 JPY, having stretched to a near four-month high of 103.15.

S&P 500 Sees Biggest Weekly Decline Since 2012

Data showing U.S. job growth eased off in July and the unemployment rate unexpectedly rose suggests that the Federal Reserve may keep interest rates low for a while. The jobs growth, which came in below economists’ forecasts, relieved some investors worried about how soon the Fed could increase interest rates after data on Thursday showed U.S. labour costs recorded their biggest gain in more than 5 1/2 years in the second quarter. Seven of the 10 S&P 500 sectors ended lower with S&P financials among sectors with the biggest losses. The Dow Jones industrial average fell 69.93 points to 16,493.37, the S&P 500 lost 5.52 points to 1,925.15 and the Nasdaq Composite dropped 17.13 points to 4,352.64. For the week, the S&P 500 fell 2.7 percent, its biggest weekly percentage loss since the week ending June 1, 2012. The Dow ended down 2.8 percent for the week, while the Nasdaq fell 2.2 percent. The Dow’s losses pulled it deeper into negative territory and is consequently down 0.5 percent for the year to date.

WTI Trades Near Six-Month Low Before Economic Data

West Texas Intermediate crude traded near the lowest price in six months before data that will signal the strength of the economy in the U.S., the world’s biggest oil consumer. Brent was steady in London. Futures were little changed in New York after capping the biggest weekly decline in seven months on Aug. 1. The Markit Economics purchasing managers index for U.S. services is due tomorrow, while factory order data is also scheduled this week. WTI for September delivery was at $98 a barrel in electronic trading on the New York Mercantile Exchange, up 12 cents. The contract slid 0.3 percent to $97.88 on Aug. 1, the lowest close since Feb. 6. The volume of all futures traded was about 1.3 percent above the 100-day average. Prices are down 0.5 percent this year. Brent for September settlement rose 21 cents to $105.05 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude was at a premium of $7.08 to WTI. It closed at $6.96 on Aug. 1.

That sums up today’s highlights! We hope you have a profitable day on the markets.

Markets Shift in Anticipation of Fed Decision

Another Fed decision, another craze on the market. It seems to be becoming a trend this month that every time the Fed meets or one of the policy makers speaks the markets go hay-wire as investors and speculators wage bets on the future of U.S. economy. The FOMC has been in meeting since yesterday and will announce its decisions later today, but the anticipation of the announcement has already sent the markets spinning out of normal trajectory.

Both European and U.S. stock futures gained along with Asian equities, while the currencies of emerging markets devalued and copper dropped before the Federal Reserve announces a possible taping of stimulus to begin this week. Indian shares, however, increased after the country’s central bank came to the unexpected decision not to raise interest rates.

The main issue on the table at the current FOMC meeting is the programme for reducing the $85 billion monthly bong-buying programme. At the end of their last meeting policy makers said they would like to see “more signs of a strength” in the U.S. economy before tapering, and the data for last month has certainly leaned that way. Whether will consider them enough for tapering however, still remains to be seen.

What could a future of “easy money” do to the world economy?

What would happen if interest rates worldwide dropped even lower and stay down for many years to come? What if much more bond-buying lies ahead? Yes, the Federal Reserve plans to reduce its bond-buying, leading us to the assumption that we are finally on the way towards tighter monetary policy after years of unprecedented stimulus efforts. But what if this is just a diversion?

Many of the world’s policymakers have hinted at this lately, and if they are right, we should expect even bigger gains in stock markets and higher gold prices, as well as international currency tensions, not to mention rising real estate prices in selective city centres. There may even be potential political repercussions for those excluded from this hypothetical jackpot. Last month saw perpetuating policies that have left the interest rates of developed countries near zero while inflating central-bank balance sheets. Now, people are suggesting that policy “normalisation” is too far in the future to even contemplate.

Should the Fed lower the unemployment rate target? Chairman Bernanke has hinted that the Fed could incorporate this revision into its “forward guidance” policy, saying that rates could stay near zero “well after” the jobless rate fell below 6.5%. At an International Monetary Fund event Lawrence Summers, the former Treasury Secretary, argued that the U.S. economy is trapped by “secular stagnation,” which has left the natural rate of interest far below zero. In other words, he was saying that we need even more aggressive policies to get around the “zero bound” floor on the Fed’s target interest rate.

But what does all this imply for future policy? As Bernanke and Summers discussed in an exchange after his speech, fiscal policy would be the ideal solution. That could include an immediate burst of targeted spending on infrastructure projects and an end to blanket austerity measures in the U.S. and Europe, while also reducing long-term government commitments on health care and social security.

But the current political climate prevents such sensible solutions in many countries. Instead, central banks may be driven to larger rounds of bond-buying and maybe even a deliberate strategy to create inflation by adopting nominal GDP targets. A continuous easy monetary policy may deepen the divisions within and between economies; the gap will widen between the few who benefit from financial market advances and the many who don’t. Despite the irrefutable weakness in consumer-price inflation that is provoking all these discussions, asset inflation is a real problem that is not that easy to get rid of. The ever-widening global wealth gap cannot so easily be separated from easy-money policies. If political solutions are purely localised and fail to address the extensive, global imbalances that are generating the stagnation we’ve been experiencing, the real problem will never get resolved.

Bullion Declining As Fed Hints At Recovery

Gold declined for a third day, trimming its monthly gain, as the U.S. Federal Reserve spoke of willingness to scale back its monetary stimulus, should economy improve. Silver platinum, and palladium have also experienced drops.

Gold for immediate delivery fell as much as 0.7 percent to $1,335.30 an ounce. Prices, however, are still up 0.5 percent this month after the 16-day U.S. shutdown hurt the country’s economy and investors anticipate that the Fed won’t slow down the pace of asset purchases until next year.

More specifically the central bank announced yesterday that it will maintain its $85 billion monthly bond purchases, while noting that it could see signs of “underlying strength” in the economy.

Gold Lingers At Five-Week High

After the release of U.S. economic data backing the maintenance of the stimulus by the Federal Reserve, gold remained near its highest level in five weeks, before the central bank policy makers meet later today to discuss recovery.

The precious metal rose 0.6 percent to $1,360.76 an ounce, traded at $1,354.12 at 2:46 p.m. in Singapore. Prices climbed to $1,361.93 yesterday, the highest since 20th September. Holdings in the SPDR Gold Trust, the biggest gold-backed exchange-traded product, remained steady at 872.02 metric tons yesterday.

Gold gained in October following the 16-day U.S. government as lawmakers warred over the U.S. budget and debt ceiling, and which may have impeded growth in the nation’s economy.

Gold trading has been low as investors seem to be waiting for the Fed’s official decision regarding quantitative easing and the stimulus reduction plan.

After a 12-year gain, gold dropped 19 percent in 2013 on expectations that the Fed would reduce its $85 billion in monthly body buying as the economy strengthened. The unexpected decision of Fed policy makers to continue providing the economic stimulus at the same levels in their September meeting, has lured investors back to the safe-haven commodity

Gold rallies as investors lose faith in dollar

Gold rallied back up to a near three-week high level as investors consider the implications the Non-Farm Payrolls which indicated that employers added fewer jobs to the U.S. economy in September than expected.

The precious metal, however, is till set to record its first annual drop since 2000, as earlier this year investors turned away from this economic safe-haven on the expectation of the American economy would improve and the Fed would begin to cut its $85 billion monthly bond purchases.

Economists now expect that policy makers will delay cutting bond purchasing until March 2014. The Fed’s next two policy meetings are scheduled for 29-30 October and 17-18 Dec.

Dollar falls after lower-than-expected NFP report

Following yesterday’s release of U.S. Non-Farm Payrolls which showed slow growth and suggested that the Fed will not be easing its stimulus plan, the dollar fell to a two-year low against the euro. The much-awaited report by the Labor Department which had been delayed by the U.S. government shutdown showed yesterday that employers had added fewer jobs in the American than economists expected.

The yen also saw a rise against all major counterparts as investors seek for alternative refuge assets. The yen can be seen strengthening in periods of global economic turmoil because Japan does not rely on foreign capital to fund its deficit.

Stocks Finish Strong in the US

All three major indices finished superbly by the end of trading on Friday and had one of the best weeks of the year overall. The Dow, S&P 500 and Nasdaq ascended substantially, will all three seeing increases between 2.1 and 2.8 per cent. Dow and Nasdaq were both nearing record highs on Thursday although there was no major facilitator to cause the soar. It seems that investors are expecting the stocks to reach new highs in the coming weeks and therefore continue to trust in the bull market’s sustainability. Friday’s momentary sell-off was due to worse-than-expected data, but did not impact hugely the largely successful week of strong performance by the three major indexes.

Manufacturing Rallies?

The recent index rally in the US has inspired many to applaud FED chairman Ben Bernanke for his pro-market fiscal policies. Peter Schiff, the CEO of Euro Pacific Capital points out in his recent article that market performance “is now almost completely correlated to Fed activism”. Indeed, market rallies, as with S&P 500 and Dow Jones, tell us more about investor confidence and very little about actual economic health of country and the companies listed in these indexes. Schiff argues that all recent market rallies are preceded by fresh stimulants from the FED and thus the markets fall when the stimulus tab runs dry.

For the investor, it’s imperative to know which variables to look at before investing. If Schiff is correct, markets will surge after Bernanke’s next decision to stimulate the economy. In other words, a case can be made that the rallies we are currently witnessing are largely artificial. Stock-investing is a powerful and historically efficient tool to boost the economy, but if Schiff is right, the only this investors are boosting is a big fat bubble - wholly dependent on the government’s economic policies.

A Rally Before The Storm?

The S&P 500 finished lower on Tuesday, bringing the winning streak of gains to an end as investors moved away from technology, but the Dow managed to pull some gains and thus end at yet another record high. The Dow also hit a record high, while the S&P 500 is approaching its own high of 1,565.15, from October 9, 2007. The market’s surge recently has pushed the Dow up 10.3 per cent for the year and boosted the S&P 500 by 8.9 per cent for 2013 until now. Signs of improvement in the economy and the Fed’s quantitative easing policies might indicate a better future, but one economist, Steve Keen, believes that the US stock market is a massive bubble. “Nothing can accelerate forever. At some point the acceleration stops, and when it does the market breaks,” Keen told The Daily Ticker.

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