While you were sleeping Fed lifts stocks, bonds

Thursday 1st May 2014

US equities and bonds gained after the Federal Reserve indicated it will keep interest rates low for "a considerable time," while also pointing to a pick-up in the economy.

"Growth in economic activity has picked up recently, after having slowed sharply during the winter in part because of adverse weather conditions," the Federal Open Market Committee said in a statement. "Labour market indicators were mixed but on balance showed further improvement. The unemployment rate, however, remains elevated. Household spending appears to be rising more quickly."

The Fed said it would reduce its monthly bond-buying programme by US$10 billion to US$45 billion, as had been widely anticipated, and stressed that it will keep its benchmark interest rate steady.

"It likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends," according to the Fed. That should go a ways to easing concerns about when rates could start to rise. Fed Chairman Janet Yellen had pegged the timing to as soon as six months after the bond-buying programme concluded.

In afternoon trading in New York, the Dow Jones Industrial Average added 0.34 percent, while the Standard & Poor's 500 Index gained 0.17 percent. The Nasdaq Composite Index slipped 0.07 percent.

"The Fed is saying you have to look past the weak GDP numbers (released earlier in the day) and we are past that now," Mark Vitner, a senior economist at Wells Fargo Securities in Charlotte, North Carolina, told Bloomberg News. "This sends a message that the Fed is firmly on course to continue tapering and wind down purchases by year end."

Shares in United Technologies and Goldman Sachs rose, up 0.9 percent and 1 percent respectively, leading the gain in the Dow.

US Treasuries also advanced, pushing yields on the 10-year bond three basis points lower to 2.67 percent.

The latest economic data had offered a mixed picture, showing the US economy barely expanded in the first quarter, though companies last month hired more workers than anticipated.

Gross domestic product expanded at a 0.1 percent annualised rate in the first quarter, while US employers increased payrolls by 220,000 in April. GDP had expanded at a 2.6 percent rate in the final three months of 2013. The US government will release its key non-farm payrolls report for April on Friday in Washington.

Shares of Twitter sank, last down 10.1 percent, while shares of eBay also dropped, extending Tuesday's slide and last down 4.9 percent on Wednesday, after they were among companies that failed to produce inspiring results.

In Europe, the Stoxx 600 Index ended the session 0.1 percent lower than the previous close. The UK's FTSE 100 and Germany's DAX both rose 0.2 percent. France's CAC 40 fell 0.2 percent.

Shares in BNP Paribas and Credit Suisse fell after reports the banks could face criminal charges in the US. BNP also said it may need to set aside more than the US$1.1 billion it already has to cover the cost of settlements with US authorities.

BusinessDesk.co.nz

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