Traders feel force of stiff US headwinds
The benchmark S&P/ASX 200 Index finished 13.14 points, or 0.3 per cent, lower at 5238.10, while the All Ordinaries dipped 14.9 points, or 0.3 per cent, to 5230.4.
The Fed is widely expected to start reducing its $US85-billion-a-month stimulus to $US75 billion. Much of the trimming is likely to come from purchase of government bonds, rather than mortgage-backed securities, therefore continuing to support the US housing-led recovery.
Macquarie Private Wealth director Martin Lakos said local trade was subdued, with a "a little bit of risk-off mentality coming back into the market".
Emerging market stocks and the Australian dollar, traditionally considered risky assets, have benefited from the Fed pumping trillions of dollars into the US economy to help counter the devastating effects of the financial crisis.
But Mr Lakos said tapering talk was one of three headwinds facing local shares, with all the road bumps coming from the US. The world's biggest economy is quickly approaching its debt limit, with Congress' deadline on raising the limit in the middle of next month.
Mr Lakos said that and speculation on the replacement for Fed chairman Ben Bernanke when his term expires at the end of January next year was sending ripples across markets.
Gold stocks have particularly been thrown about. The precious metal extended losses into a third session on Wednesday, falling more than 1 per cent to less than $US1300 an ounce.
"With the prospect of tapering coming in, we would expect US bond yields to start to go up, albeit modestly. That would add some support for the US dollar and being traded in US dollars, that can't be positive for gold," Mr Lakos said.
The energy sector was the worst performer on the ASX, losing 0.8 per cent, as crude prices fell to a six-week low. Woodside Petroleum eased 0.8 per cent to $38.43, while Origin Energy eased 0.4 per cent to $13.86.
The banks were mixed. CBA and Westpac rose 0.5 per cent to $73.98 and 0.2 per cent to $35.52 respectively, while NAB fell 0.1 per cent to $34.64 and ANZ shed 0.2 per cent to $30.73.
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The S&P/ASX 200 slipped 13.14 points, or 0.3%, to finish at 5,238.10 as investors grew cautious ahead of the US Federal Reserve's decision. The All Ordinaries also dipped 14.9 points, or 0.3%, to 5,230.4.
The Fed was widely expected to trim its US$85 billion-a-month stimulus to US$75 billion, with most reductions likely coming from government bond purchases rather than mortgage-backed securities. The article notes this tapering talk is a key headwind for markets and could push US bond yields up modestly and support the US dollar.
The article explains emerging market stocks and the Australian dollar had benefitted from the Fed pumping trillions into the US economy during the financial crisis. Tapering or reduced stimulus can reduce that support for traditionally riskier assets.
Gold extended losses into a third session, falling more than 1% to trade under US$1,300 an ounce. The piece quotes Martin Lakos saying that potential Fed tapering could lift US bond yields and the dollar, which is typically negative for gold priced in US dollars.
The energy sector was the worst performer on the ASX, down about 0.8% as crude oil fell to a six-week low. Woodside Petroleum eased 0.8% to US$38.43 and Origin Energy fell 0.4% to US$13.86.
Bank results were mixed: Commonwealth Bank (CBA) rose 0.5% to $73.98 and Westpac gained 0.2% to $35.52, while NAB fell 0.1% to $34.64 and ANZ shed 0.2% to $30.73.
Aside from tapering, the article highlights two other US risks: the approaching US debt limit with a Congressional deadline next month, and market speculation about who will replace Fed chairman Ben Bernanke when his term ends at the end of January next year.
The article suggests investors should watch the Fed decision on stimulus tapering, developments around the US debt ceiling, and any news about the next Fed chairman — all of which were cited as sources of market volatility and could influence bond yields, the US dollar, commodity prices and Australian shares.
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