CMC Markets Weekly Report

Q: How did the Federal Reserve's comments about quantitative easing affect markets?

Comments that the Fed would keep policy highly accommodative implied continuation of its quantitative easing programme, calming investors who had been jittery after talk of tapering began in late May. That reassurance helped push U.S. stocks back toward record territory.

U.S. stocks inched slightly higher Friday. The Dow Jones Industrial Average rose just 3 points to 15,464.30, the S&P500 added 5 points, finishing at 1,680.19 and the Nasdaq rose 0.6 percent to close at the highest level since September 2000.

By CMC Markets · 15 Jul 2013

By CMC Markets ·
15 Jul 2013

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U.S. stocks first soared back into record territory Thursday, as investors welcomed comments from Federal Reserve chairman Ben Bernanke who on Wednesday said monetary policy would remain "highly accommodative" for the foreseeable future.

The statement implied that the central bank would continue its massive program of quantitative easing, and helped soothe investors who have been whipsawed by tapering talk that began in late May.

In economic news, producer prices rose by 0.8 percent in June, above forecasts for a 0.5 percent gain. But core prices rose 0.2 percent, just ahead of the 0.1percent expected gain. Consumer sentiment eased from 84.1 to 83.9 in July.

Global oil prices powered higher pushed in part by a spike in gasoline prices and renewed market optimism about US demand. New York's main contract, West Texas Intermediate (WTI) for August, leaped $US1.04 from Thursday to finish at $US105.95 a barrel. The European benchmark, Brent North Sea crude for delivery in August, climbed $US1.08 to settle at $US108.81 in London trade.

Gold prices edged lower as a stronger US dollar and disappointment over gold purchases by top consumer India offset support from weaker US data. The most actively traded contract, for August delivery, on Friday fell $US2.30, or 0.2 per cent, to settle at $US1,277.60 a troy ounce on the Comex division of the New York Mercantile

Copper closed lower on the London Metal Exchange (LME), weighed by a strong US dollar and concern over demand for the commodity from top metals consumer China. At the PM kerb close on Friday, the LME's flagship three-month copper contract was down 0.7 per cent at $US6,953 a metric ton. Aluminium fared better, ending the session 0.5 per cent higher at $US1,843 a ton.

The Aussie dollar edged below 90 US cents late on Friday. The Aussie touched 89.98 US cents on offshore trade after China's finance minister was quoted as saying the world's second largest economy was growing at a slower pace than the previously forecast 7.5 per cent.

In the week ahead, the Australian share market is expected to open higher following modest gains in the US late on Friday, but a key reading of Chinese growth could influence market sentiment. China GDP data out at midday today is expected to show the world's largest economy grew 1.8 per cent in the June quarter, taking the annual rate to 7.5 per cent.

Lending finance and car sales data is released today followed by RBA minutes for July board meeting on Tuesday. Wednesday, Westpac business lending for May and on Thursday we can expect NAB business confidence for the second quarter along with RBA foreign exchange transactions for June.

In the U.S. retail sales data is expected together with business sales/inventories and the New York Fed manufacturing data. Tuesday, its June CPI, industrial production and the NABHB housing index. Wednesday, housing starts for June, building permits and the Fed's Beige book. The Philadelphia Fed Index along with leading indicators for June rounds off the week on Thursday.

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Frequently Asked Questions about this Article…

Why did U.S. stocks move higher this week and which indexes were affected?

U.S. stocks inched higher after Federal Reserve chairman Ben Bernanke signalled monetary policy would remain "highly accommodative," which eased tapering fears. The Dow rose slightly (to 15,464.30), the S&P 500 added about 5 points (to 1,680.19) and the Nasdaq jumped about 0.6% to its highest close since September 2000.

How did the Federal Reserve's comments about quantitative easing affect markets?

Comments that the Fed would keep policy "highly accommodative" implied continuation of its quantitative easing programme, calming investors who had been jittery after talk of tapering began in late May. That reassurance helped push U.S. stocks back toward record territory.

What recent U.S. economic data should everyday investors be aware of?

Recent data showed U.S. producer prices rose 0.8% in June (ahead of the 0.5% forecast) while core producer prices increased 0.2% (slightly above expectations). Consumer sentiment eased slightly from 84.1 to 83.9 in July. The article also flags upcoming U.S. releases for the week, including retail sales, CPI, industrial production, housing starts and the Fed's Beige Book.

How did oil, gold and base metals trade and what were the reported price moves?

Global oil prices rose strongly — WTI for August settled at US$105.95 a barrel and Brent at US$108.81 — helped by a spike in gasoline prices and optimism about U.S. demand. Gold edged lower (August gold around US$1,277.60 an ounce) as a stronger U.S. dollar and weaker-than-expected Indian buying weighed. Copper fell on LME (about US$6,953 a metric ton, down 0.7%) while aluminium ended up around US$1,843 a ton (up 0.5%).

Why did the Australian dollar slip below 90 U.S. cents and what influenced that move?

The Aussie dipped to about 89.98 U.S. cents after comments from China’s finance minister saying China was growing slower than the previously forecast 7.5%. Concerns about slower Chinese growth weighed on the currency in offshore trade.

Which Chinese and Australian data releases could influence the Australian share market this week?

The key data item is China GDP due midday, with expectations of 1.8% growth in the June quarter (annual rate 7.5%). In Australia, investors should watch lending finance and car sales data, RBA minutes from the July board meeting, Westpac business lending for May, NAB business confidence for Q2 and RBA foreign exchange transactions for June — all flagged as potential market movers.

What U.S. indicators are on the calendar that may affect markets and investor decisions?

U.S. releases to watch include retail sales, business sales and inventories, the New York Fed manufacturing index, June CPI, industrial production, the NABHB housing index, housing starts, building permits, the Fed's Beige Book, the Philadelphia Fed Index and leading economic indicators — all scheduled across the week.

How should everyday investors use this week's economic calendar when managing portfolios?

Use the calendar to anticipate volatility around key releases: Fed commentary and U.S. macro data, China GDP and Australian releases were highlighted as potential market drivers. Plan for short-term moves around those events, avoid overreacting to single prints, and consider whether any news changes your longer-term investment thesis rather than making impulsive trades.