While you were sleeping Deciphering Fed speak

Tuesday 10th December 2013

Wall Street rose amid optimism that accelerating economic growth will outweigh any pullback in the US Federal Reserve's bond-buying programme.

In afternoon trading in New York, the Dow Jones Industrial Average rose 0.11 percent, the Standard & Poor's 500 Index advanced 0.24 percent, while the Nasdaq Composite Index gained 0.15 percent. Gains in shares of General Electric and Caterpillar, both last up 1.1 percent, led the Dow higher.

"The economy isn't simply being driven by central-bank liquidity; it's far more fundamental than that," Henk Potts, a strategist at Barclays Wealth & Investment Management in London, told Bloomberg News.

Fed policymakers meet on Dec. 17-18. They will probably begin easing their US$85 billion monthly bond buying then, according to 34 percent of economists surveyed on Dec. 6 by Bloomberg. That was an increase from 17 percent in a November survey.

"When the FOMC meets next week, I expect discussion about the possibility of reducing the pace of asset purchases," Richmond Fed Bank President Jeffrey Lacker told the Charlotte Chamber of Commerce Economic Outlook Conference on Monday. "The key issue, in my view, is the extent to which the benefits of further monetary stimulus are likely to outweigh the costs."

Dallas Fed Bank President Richard Fisher is scheduled to speak in Chicago later today.

"There is no question - at some point, there is tapering. Whether that is December or March or June, it's coming," Tim Ghriskey, chief investment officer of Solaris Group in Bedford Hills, New York, told Reuters. "All the Fed-speak helps the market get prepared for that."

While the Fed has been heavily focused on jobs growth in the US, it also is concerned about the slow rate of inflation.

"Inflation continues to surprise on the downside," St Louis Fed Bank President James Bullard said in St Louis on Monday. "A small taper might recognise labour market improvement while still providing the committee the opportunity to carefully monitor inflation during the first half of 2014."

Shares of McDonald's slid, posting the largest percentage drop in the Dow and were last 1.1 percent weaker, after the company's sales in November fell short of analysts' estimates.

Shares of Sysco soared, last up 11 percent, after it agreed to buy US Foods in a deal valued at about US$3.5 billion.

In Europe, the Stoxx 600 Index finished the day with a 0.2 percent gain from the previous close. The UK's FTSE 100 and France's CAC 40 both increased 0.1 percent, while Germany's DAX rose 0.3 percent.

An index measuring investor sentiment in the euro area was at 8 in December, down from 9.3 in November, according to Germany's Sentix research institute. Separately, Germany's industrial production unexpectedly fell, sliding 1.2 percent in October, following a 0.7 percent drop the previous month.

BusinessDesk.co.nz

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