Scoreboard: Quitting QE

Wall Street wobbled after the Fed decision was announced, while European markets edged higher. The US dollar rose strongly against other major currencies.

In the US, the Federal Reserve has ended its quantitative easing program of asset purchases. The Fed says interest rates will stay near zero for a "considerable period" but the language of the statement is more "hawkish" -- that is, it suggests that rates may rise earlier than originally expected by economists.

The US Federal Reserve said that "underutilization of labor resources is gradually diminishing" as opposed to the previous statement where it noted "there remains significant underutilization of labor resources" 

European shares rose on Wednesday ahead of the Federal Reserve decision. The FTSEurofirst 300 index rose by 0.2 per cent with the UK FTSE up by 0.8 per cent and the German Dax lifted by 0.2 per cent. Australia's major miners were weaker in London trade with shares in BHP Billiton down by 0.1 per cent while Rio Tinto lost 1.2 per cent.

US sharemarkets gyrated after the Federal Reserve decision with the Dow Jones index swinging through an 85 point range in a 30 minute period. After being down 110 points, at the close the Dow Jones was lower by 31 points or 0.2 per cent with the S&P 500 index down by 0.1 per cent while the Nasdaq fell by 15 points or 0.3 per cent. 

US treasuries fell on Wednesday (yields higher) after the Federal Reserve was more upbeat in commentary accompanying the interest rate decision. US two-year yields were up by 8 points to 0.489 per cent while US 10-year yields were up by 3 points to 2.323 per cent.

The US dollar soared against major currencies after the Federal Reserve decision. The Euro rose from lows near $US1.2720 to highs near $US1.2765 but plunged to $US1.2630 after the Fed decision. The Aussie dollar rose from lows near US88.60c to highs near US89.10c before slumping to US87.75c after the Fed decision. And the Japanese yen had held between ¥107.92 per US dollar and ¥108.16 ahead of the Fed decision but weakened to ¥108.92. At the US close, the Euro was near $US1.2635, Aussie was near US87.75c and Japanese yen was ¥108.88

World oil prices rose on Wednesday after data showed that US weekly crude oil stockpiles rose by less than expected in the past week. Brent crude rose by $US1.09 or 1.3 per cent to $US87.12 a barrel while the US Nymex crude price rose by US78c or 1.0 per cent to $US82.20 a barrel.

Base metal prices were higher by between 0.3-2.1 per cent on the London Metal Exchange on Wednesday ahead of the Federal Reserve decision. Gold fell on Wednesday ahead of the Fed decision with the Comex gold futures quote down by $US4.50 an ounce to $US1,224.90. After the decision, spot gold fell to $US1,212 an ounce. Iron ore was down by US20c on Wednesday or 0.3 per cent to $US78.60 a tonne.

Ahead: In Australia, data on export and import prices is released with new home sales. NAB releases profit figures and Wesfarmers releases quarterly sales. In the US, data on economic growth (GDP) is released with weekly claims for unemployment insurance.

Craig James is chief economist at CommSec. 

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