Australian Stock Market - Morning Report 09/22/2011
The US Federal Reserve Open Market Committee (FOMC) has announced new measures to stimulate the economy. In what is termed a ´´twist´´, the FOMC intends to purchase by the end of June 2012, $400 billion of securities of maturities in a range of 6 years to 30 years and to sell an equal amount of Treasury securities of maturities of 3 years or less.
The FOMC also said that it will also reinvest proceeds from maturing mortgage and agency bonds back into the mortgage market. The FOMC also said ´´there are significant downside risks to the economic outlook´´. The FOMC voted 7-3 in favour of the decision.
US existing home sales rose by 7.7pct to a 5.03 million annual rate in August, above forecasts targeting a 4.71m result.
European shares fell again on Wednesday on global growth concerns ahead of the Fed decision. The FTSEurofirst index fell by 1.7pct while the German Dax lost 2.5pct and the UK FTSE fell by 1.4pct.
US sharemarkets gyrated in response to the Federal Reserve decision. After being down 38pts, the Dow Jones slumped to be down 157pts immediately after the decision. After tempering losses, the market sold off further in the last 30 minutes of trade to leave the Dow Jones lower by 283pts or 2.5pct with the S&P 500 down by 2.9pct and the Nasdaq fell by 52pts or 2.0pct. Also Moody´s cut the long-term ratings of Bank of America and Wells Fargo and short-term rating of Citigroup.
US treasuries reacted to the Federal Reserve decision as policymakers expected. US 2yr yields rose by 3pts to 0.198pct while US 10yr yields fell by 8pts to a record low of 1.865pct.
The US dollar rose against major currencies following the Federal Reserve decision. The Euro rose from lows near US$1.3630 to US$1.3785 before selling off to end the US session near US$1.3570. The Aussie dollar fell from European session highs around US102.90c to end US trade near its session lows around US100.40c. And the Japanese yen eased from near 76.25 yen per US dollar to JPY76.70 at the New York close.
Global crude oil prices fell on Wednesday after the Federal Reserve decision failed to ease growth fears. Nymex crude oil fell by US$1.00 or 1.2pct to US$85.92 a barrel and London Brent crude fell by US18c to US$110.36 a barrel. Nymex is currently near US$84.70 a barrel.
Base metal prices fell on the London Metal Exchange on Wednesday as investors braced for the Fed decision. Metals fell by up to 4.4pct with tin and lead faring worst although copper was close to flat. And the Comex December gold price closed trade down US$1.00 an ounce to US$1,808.10 but currently is hovering near US$1,785 an ounce.
Ahead: In Australia, Reserve Bank Assistant Governor Philip Lowe delivers a speech (9.00pm). In the US, the leading index, weekly jobless claims and monthly home price index are released.