The minutes from the FOMC meeting revealed that, despite the slowdown in economic growth, there was still little interest among Fed officials for a third round of quantitative easing - at least not in the short term. According to the minutes only ´´some participants´´ thought it would be appropriate to provide additional stimulus in the medium term if the unemployment rate remained elevated. However members spent most of the meeting firming up their exit strategy for normalising monetary policy.

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The US trade deficit widened from $43.6 billion to $50.2 billion in May - the highest since October 2008. Imports rose by 2.6pct driven by surge in capital goods, and a jump in the oil price. Exports slipped by 0.5pct in May.

European shares fell for the third straight session on Tuesday hitting a four month low. EU minister did pledge that there would provide more flexibility for rescue funds, and are expected to agree on cheaper longer term loans to support Italy and Spain. Italian banks did rebounded gaining 5-8pct. The FTSEurofirst index fell by 0.5pct, with the German Dax lower by 0.8pct and the UK FTSE down by 1pct.

US sharemarkets closed lower on Tuesday as the European debt crisis weighed on sentiment. However equities did bounce briefly after the release of the Fed minutes, which hinted at the possibility of more stimulus. The Dow Jones fell by 59pts or 0.5pct, the S&P 500 lost 0.4pct and the Nasdaq fell 20pts or 0.7pct.

US long-dated treasuries rallied on Tuesday (yields lower) as ongoing concerns about sovereign debt issues in the euro zone prompted safe-haven buying. US 2yr yields were flat at 0.36pct and US 10yr yields fell by 4pts to 2.88pct.

The Euro rallied off four-month lows against the US dollar following the release of the FOMC minutes - which left the door open for further stimulus. The Euro hit early lows near US$1.3840 before rallying to US$1.4040, ending US trade at US$1.3970. The Aussie dollar touched early lows near US105.25c before rallying to highs near US106.40c and ending US trade near US$105.95. And the Japanese yen strengthened from 80.15 yen per US dollar to JPY79.20, and ended US trade near JPY79.40.

US crude oil prices rallied on Tuesday as the weaker US dollar supported oil demand. Nymex crude oil rose by US$2.28 to US$97.43 a barrel and London Brent crude rose by US51c to US$117.75 a barrel.

Base metal prices rallied after two prior sessions of losses on the London Metal Exchange, though volumes were light. Metals gained between 0.6-2.2pct. And the gold price rose with Comex gold up by US$18.20 an ounce or 1.2pct to US$1,567.90.

Ahead: In Australia, consumer sentiment and lending finance are released In the US, import price figures are released. Chinese GDP, retail sales and industrial production are released.

Craig James
CommSec Chief Economist

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