While you were sleeping Fed bolsters hope for help

Thursday 23rd August 2012

Wall Street recovered from earlier losses amid indications US Federal Reserve policy makers are leaning towards injecting a boost of energy into the languishing economy "fairly soon".

It can't come soon enough for some companies. Signs of struggle were evident in the latest American corporate results. Shares of Dell dropped more than 6 percent after it lowered its full-year profit forecast as sales of personal computers continued to deteriorate.

"People had already expected them to take down numbers, but I think the level to which they are taking down numbers is pretty severe compared to expectations," Cross Research analyst Shannon Cross told Reuters.

However, investors drew heart from the minutes of the latest meeting of Fed policy makers as they indicated additional stimulus measures may be on the way soon.

"Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery," the Fed said in minutes from its July 31-August 1 meeting released today.

The minutes helped Wall Street recover from declines earlier in the day. In late afternoon trading in New York, the Standard & Poor's 500 Index was up 0.12 percent, while the Nasdaq Composite Index was 0.15 percent stronger. The Dow Jones Industrial Average was down 0.17 percent.

"This is quite a surprise, this announcement, and you are seeing the market react a bit favourably towards it," Tim Ghriskey, chief investment officer of Solaris Group in Bedford Hills, New York, told Reuters.

"It means they are simply waiting, they feel like they have the firepower. Clearly, at least many Fed officials have stated they do believe it will benefit the economy and they are ready to use that firepower if necessary."

US Treasuries rose on the prospect of another round of Fed bond-buying, also referred to as QE3.

"They gave the market what it wanted to hear," William Larkin, a fixed-income money manager who helps oversee US$500 million at Cabot Money Management in Salem, Massachusetts, told Bloomberg News. "They can't take away talk about QE3 because the market built up momentum on that belief. It would make sense to have that as a potential driver going forward."

Earlier in the day, Japan's surprise trade deficit had already helped bolster the lure of US Treasuries, while weighing on equity markets on both sides of the Atlantic.

Japan posted a trade deficit of 517.4 billion yen (US$6.5 billion) in July, government data showed. That followed a 60.3 billion yen surplus in June and compared with a 270 billion yen forecast deficit in a Bloomberg News survey.

In Europe, the Stoxx 600 Index finished the session with a 1.2 percent slide from the previous close. Benchmark indexes in Germany, France and the UK fell too.

Greek Prime Minister Antonis Samaras met Eurogroup chief Jean-Claude Juncker today and will meet German Chancellor Angela Merkel and French President Francois Hollande later this week in a bid to secure more time to implement fiscal reforms.

"Any comments that are constructive, giving Greece at least a chance to get an additional bailout package, is something that could support the euro further," Ulrich Leuchtmann, head of FX research at Commerzbank in London, told Reuters.

BusinessDesk.co.nz

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