Market Watch (week end Global equity markets react to Fed Comments by the U.S. Federal Reserve about the winding down of its economic stimulus program resulted in declines for global stock markets this week. Fed Chairman Ben Bernanke announced that it if current economic expectations hold, the central bank could begin winding down its massive US$85-billion-a-month asset-buying program “later this year.” Bernanke also indicated that if all goes according to plan, the Fed could end quantitative easing by mid-2014. Underlying the announcement was an increasingly optimistic forecast for the U.S. economy, including expectations that the unemployment rate will fall to 6.5%-6.8% by the end of next year, down from the current 7.6% figure. The Fed predicts the economy will expand by 3%-3.5%, up slightly from earlier forecasts. This would be the strongest growth since 2005. However, the Fed made it clear that there is no clear timeline for stimulus withdrawal. “Our [asset] purchases are tied to what happens in the economy,” Bernanke said. “If we overestimate what is happening, we will adjust to that. We have no deterministic or fixed plan.” Despite the ramped-up economic predictions, equity investors worried that removal of stimulus would hamper the current stock market rally, and that the U.S. and global economy could lose momentum without support from the Fed. Bonds prices were also hit as U.S. Treasuries fell to their lowest point in nearly two-years on expectations that the Fed would reduce bond buying. Canada fared better than most equity markets, although it retreated along with those in the rest of the world. The Fed announcement heightened doubts about the future of commodities prices and commodities stocks. Gold fell to its lowest price since 2010, putting pressure on the materials sector. The likelihood of a stronger U.S. economy, rising bond yields and a strengthening U.S. dollar hurt bullion. Base metals and oil were also pushed lower by the week’s developments, including new evidence of slowing Chinese economic growth. A key China purchasing managers’ index fell to a nine-month low, showing further contraction in manufacturing in China, a huge consumer of global commodities. Emerging markets were among the worst performers this week as the latest Fed statement indicated that the easy monetary policies that have sent investors seeking higher returns to emerging markets could end. In other news this week: Canada’s annual inflation rate rose to 0.7% in May from April’s 3½-year low of 0.4%. Canadian retail sales edged up by a less-than-expected 0.1% in April over March. The Canadian dollar fell to a 19-month low against the U.S. dollar. U.S. home resales rose in May to the highest level in 3½ years, further evidence of continuing recovery in the housing market. Prices were up 15.4% y-o-y. U.S. manufacturing activity slowed slightly in June, but continued to expand, according to a survey of purchasing managers.
Posted on: Mon, 24 Jun 2013 18:04:59 +0000
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