While you were sleeping Wall Street up as Fed meets

Wednesday 18th September 2013

Wall Street rose as the Federal Open Market Committee began a two-day policy meeting that is expected to mark the start of a gradual reduction in its monthly bond-buying program.

The Fed will probably lower its US$85 billion of monthly bond purchases by US$10 billion, according to a Bloomberg News poll this month. That's down from the forecast of a US$20 billion reduction in a July survey.

US inflation has been running well below the central bank's target of 2 percent. The consumer price index increased less than expected in August, advancing 0.1 percent, following a 0.2 percent gain in July, according to a Labor Department report on Tuesday.

"This should give policymakers greater confidence that the inflation soft patch in the first half was indeed transitory," Joseph LaVorgna, chief economist at Deutsche Bank Securities in New York, told Reuters. "As a result, some fence-sitting participants may feel marginally more comfortable proceeding with a mini-taper of quantitative easing."

Bonds rose, pushing yields on 10-year US Treasuries down one basis point to 2.85 percent.

"Inflation is way too low versus where the Fed is targeting it," Ray Remy, head of fixed-income in New York at Daiwa Capital Markets America, one of the 21 primary dealers that trade with the central bank, told Bloomberg News. "It makes the case that tapering will be smaller, but it doesn't take tapering off the table. The market is prepared for it and there's no reason to go back based on all the groundwork they've laid."

Gold prices fell, last down 0.7 percent, on the prospect of a Fed taper as well as sustained low inflation in the world's largest economy.

In late afternoon trading in New York, the Dow Jones Industrial Average rose 0.25 percent, the Standard & Poor's 500 Index added 0.45 percent, while the Nasdaq climbed 0.74 percent.

Gains in shares of Alcoa, last up 2 percent, and Intel, last up 1.7 percent, led the Dow higher.

Shares of Microsoft rose, last up 0.6 percent, after the company announced a US$40 billion buyback and increased its dividend.

In Europe, the Stoxx 600 Index dropped 0.5 percent from the previous close. The UK's FTSE 100 shed 0.8 percent, while France's CAC 40 and Germany's DAX both declined 0.2 percent.

German investor confidence climbed to the highest level since April 2010, according to data from the ZEW Center for European Economic Research.

BusinessDesk.co.nz

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