Scoreboard: Fed fallback

Selling was focused around emerging markets as the Fed’s taper seemed a sign of things to come.

Well this time there were no surprises. The US Federal Reserve decided that it would now only print $65 billion per month instead of the $75 billion it had been previously - and they look set to taper further in meetings ahead, if the economy remains on its current course. The Federal Reserve is certainly much more optimistic in its rhetoric, noting that “information received since the Federal Open Market Committee met in December indicates that growth in economic activity picked up in recent quarters. Labour market indicators were mixed but on balance showed further improvement.”  That’s an upbeat statement - things are picking up and more to the point, for the first time since I can remember the Fed described “the risks to the outlook for the economy and the labour market as having become more nearly balanced.”

Global stocks sold in the lead-up to the decision, a lot of the damage done before the meeting, although the S&P500 lost another 0.6 per cent on the decision. It rebounded quickly from that but with an hour left to trade is still some 0.8 per cent weaker (1778). The Dow is off 134 points, the Nasdaq is down 0.7 per cent and European stocks were all off 0.7 per cent-0.8 per cent. Intertwined with the Fed’s taper are concerns over emerging market economies, and no doubt these fears exacerbated the selling action in the equity market.

Forex moves didn’t seem to be too much influenced by the Fed. That is for the major economies. Certainly the Australian dollar was down over 40 pips to 0.8755 and is back into heavily oversold territory. Yet the euro, having hit a low of 1.3601, ended little changed at 1.3650; ditto the British pound  which ended little changed at 1.6568 (low of 1.6528). Finally Japanese yen is at 102.24 from 103.20. Most of the action was in the emerging space - Turkey’s currency off over 4 per cent, Russia’s nearly 2 per cent etc.

Rates rallied despite the Fed’s taper and it was quite a decent effort as well. The yield on the US 10-year note dropped more than 8bps to 2.7 per cent as safe haven flows picked up. Investors are clearly worried by the impact the Fed taper will have on emerging markets.

Commodities had a mixed session with gold up nearly $15 to $1265 - and silver rose too, 1.1 per cent. Yet copper was down 0.4 per cent and crude was mixed. WTI was flat at $97.44 and Brent was 0.4 per cent higher ($107.9).

Elsewhere we saw house prices in the UK rise 0.7 per cent in January to be 8.8 per cent higher over the year. In Europe, German consumers were more confident, with a sentiment index rising to 8.2 in February from 7.7, according to GfK. Then M3 (the money supply) rose by 1.3 per cent in December to be 1 per cent higher annually. Otherwise US mortgage applications fell by 0.2 per cent in the week to January 24, after a 4.7 per cent rise the week prior.

In markets today, the SPI suggests our bourse will give back the gains it made yesterday, losing about 1.1 per cent. Outside of that there isn’t too much. For the domestic market we get HIA’s new home sales at 1130 AEDT, alongside the trade price indexes. This evening we saw German employment figures, UK mortgage approvals, the eurozone business climate indicator and German inflation. For the US, we see another estimate of fourth-quarter GDP - 3.2 per cent is expected from 4.1 per cent. We also see jobless claims and pending home sales.

Have a great day…

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