Scoreboard: Taper time

The Federal Reserve trimmed its monthly bond purchases by a further $US10 billion as it downgraded its growth forecast for 2014, while the Australian dollar jumped back above US94c.

As expected, the Federal Reserve cut its monthly purchases by $US10 billion to $US35bn, reflecting $US20bn in Treasury purchases and $US15bn in mortgage backed securities.

In doing so, the Fed sounded quite upbeat noting that “growth in economic activity has rebounded in recent months.” Growth and inflation forecasts were little changed on the whole, other than a downward revision to 2014 growth forecasts to reflect poor weather at the start of the year.

The Fed had thought a range of 2.8 per cent to 3 per cent for GDP for the year, but lowered that to between 2.1 per cent and 2.3 per cent. Having said that, forecasts for the unemployment rate were also revised lower (5.4 per cent to 5.7 per cent in 2015 from 5.6 per cent to 5.9 per cent).

Other than that there were minor tweaks to the rate expectations of the Fed presidents. Of the 16 FOMC participants, 9 expect the Fed funds rate to end 2015 at between 1 and 2 per cent. The majority expect it to be closer to 1 per cent.

Rates had another comparatively big move overnight. This time though the US 10-year Treasury yield retreated, back to where it was before the FOMC meeting started. For last night, the 10-year yield was down 5bp to 2.592 per cent. The 5-year yield was then down 6bp to 1.678 per cent, while the 2-year is at 0.44 per cent. Australian futures rallied -- the 3s and 10s up 4 ticks to 97.21 and 96.305 respectively.

Equities enjoyed a decent bid on Wall Street. The S&P 500 was 0.8 per cent higher at the bell (1956), the Dow rose 98 points (16906), while the Nasdaq was 0.6 per cent higher at 4362. Over in Europe, markets generally tended weaker although the Dax just managed to end in the black rising 0.1 per cent. Otherwise the CaC fell 0.1 per cent and the FTSE 100 fell another 0.97 per cent.

Commodities generally pushed higher, with the exception of WTI crude. (-0.2 per cent to $106.2) Elsewhere, Brent continues to push higher rising a further 0.7 per cent over night to $114.3. In the metals space, gold was up $4 to $1276 per ounce, silver rose 0.6 per cent and copper was 0.2 per cent higher.

Forex markets saw the euro push higher in generally one-way trade although there was a bit of whippiness around the Fed’s decision. As I write, the euro is about 45 pips higher (from 4.30pm AEST yesterday) to be at $US1.3590. The British pound traded on a 65 pip range bouncing around until a bid firmed after the Fed’s decision -- all up Sterling is about 25 pips higher than at 4.30pm (AEST) yesterday. As for the Australian dollar, the unit wasn’t doing anything until the FOMC. After that it shot up around 60 pips and now sits at $US0.9403. The Japanese yen is just above target at 101.9.

Elsewhere, European construction activity rose 0.8 per cent in April, to be 8 per cent higher annually. In the US, the current account deficit widened to $111bn in the March quarter from $87bn, while mortgage applications fell 9.2 per cent in the week to June 13 following a 10.3 per cent gain.

Markets today. The SPI suggests our market will be up 0.4 per cent today. Data-wise there isn’t much to speak of though for our session. Tonight we see UK retail sales, while for the US we get the usual weekly jobless claims, the Philly Fed index and leading indicators.

Have a great day.