World Market Overview
U.S. stocks bounced in and out of positive territory but are now rising, while the dollar and the 10 year Treasury plunged, after the Federal Reserve said it would buy $600 billion in longer-term securities by the middle of next year as part of its latest effort to prime the domestic economy.
The Dow Jones Industrial Average was up 17 points, or 0.2%, at 11207 after the Fed announcement, while the Standard & Poor's 500-stock index rose 3 points to 1196 and the Nasdaq Composite was up 4 points to 2537. The 10 year Treasury note sank after the Fed announcement, pushing the yield up to 2.634%.
Gold and metals also fell as the Fed said it would maintain its existing policy of reinvesting principal payments from its securities holdings, and purchase a further $600 billion of longer term Treasury securities by the end of the second quarter of 2011 at a pace of about $75 billion per month. The Fed said it would also "regularly review the pace of its securities purchases and the overall size of the asset-purchase program" as economic data flows in, nodding both to inflation and unemployment.
Expectations of Fed easing had helped fuel a two month surge on the stock market that has added 12% to the Dow. Investors on Wednesday were responding both to the Fed move as well as big Republican gains in the U.S. Congress, which investors had long been expecting. The Fed move was generally in line with market estimates, putting to rest the idea that the central bank would proceed on a more cautious step by step basis from the get go.
The market moves came on a day when the economy showed tepid signs of improvement. Private sector employment increased by 43,000 in October, topping expectations of a 22,000 job gain. U.S. factory orders rose by a higher than expected 2.1% in September, the third consecutive month of growth for one of the economy's key drivers.
Meanwhile, a measure of non-manufacturing activity came in at 54.3 for October, higher than September's 53.2 reading and better than consensus expectations of 53.5. Companies in focus include BlackRock, which tumbled 4.2% after Bank of America said it is offering at least 34.5 million shares it holds in the money manager, while fellow part owner PNC Financial Services Group is selling up to 7.5 million shares. Bank of America may also sell another 6.3 million shares in the overallotment option. PNC gained 0.7%, while Bank of America added 0.6%.
European market
European stocks ended lower Wednesday as jitters prevailed ahead of the U.S. Federal Reserve's monetary-policy announcement. The Stoxx Europe 600 index fell 0.4% to finish at 266.51. Economists expect the Fed to buy between $500 billion and $750 billion of government bonds and say the impact of purchases around that level are already priced into markets.
Investors Wednesday were also digesting results from Tuesday's U.S. midterm elections, in which the Republican Party won control of the House of Representatives, but the Democratic Party retained control of the Senate. Among the main indexes, the French CAC 40 dropped 0.6% to end at 3,842.94. Societe Generale shares rose 1.9%. The French bank said third-quarter net profit more than doubled to 896 million euros, beating market expectations, as revenue rose 5.5%.
Other bank stocks were mostly higher. Lloyds Banking Group jumped 3.7% in London after announcing the surprise appointment of Antonio Horta-Osorio as the successor to Chief Executive Eric Daniels. Horta-Osorio has run Banco Santander's U.K. operations since 2006. Shares in Santander slumped 3.5%.
The U.K.'s FTSE 100 index slipped 0.2% to 5,748.97, as several other stocks in the benchmark index posted significant losses. Aerospace and defense group Cobham PLC tumbled 9.5% after the company said it is continuing to experience delays and deferrals in the award of some U.S. defense and security contracts. Retailer Next PLC fell 2.2% after its trading update disappointed investors and as Numis downgraded the stock to hold from buy, citing expectations for tougher competition in the sector.
In Germany, the DAX 30 index dropped 0.6% to end at 6,617.80 after rallying to a fresh 2010 closing high in the previous session. German luxury car maker BMW AG declined 1.4%, even as the company reported strong results. BMW's shares have surged 64% over the past 12 months, so investors saw the earnings release as an opportunity to take profits.
Asian market
Most Asian markets ended higher Wednesday, with Hong Kong shares climbing to a 28 month high, as investors shrugged off a strong performance by Republicans in the U.S. midterm elections while awaiting expected monetary easing measures from Wednesday's meeting of U.S. Federal Reserve officials. Hong Kong's Hang Seng index climbed 2.0% to 24,144.67, South Korea's Kospi added 0.9%, while China's Shanghai Composite slipped 0.5%. Japan's markets were closed for a holiday. Results of Tuesday's midterm elections in the U.S. showed the Republican Party took control of the House of Representatives, while the Democrats managed to keep their majority in the Senate.
In Hong Kong, shares climbed, led by port operators and Chinese banks, with analysts saying they expect the blue-chip index to maintain its upward momentum toward the end of the year, supported by abundant liquidity and the continued strength of the local economy. A continued recovery in demand for global trade and rising freight rates pushed up port operators, with ports investor Cosco Pacific jumping 5.6% and rival China Merchants Holdings adding 5.1%.
Shipping giant China Cosco Holdings rose 2.3% after Citigroup revised raised its earnings estimates for the company because of expectations for higher container freight rates. Shares of Chinese lenders rallied on both the Hong Kong and Shanghai markets. ICBC's Hong Kong shares rose 4.5% and its Shanghai listed ones added 3.2% as analysts said the impact of its planned rights issue has already been fully factored in, though it has yet to announce the details of the plan.
Base metals
Base metals on the London Metal Exchange ended mostly lower Wednesday, as better than expected U.S. economic data prompted a selloff ahead of the U.S. Federal Open Market Committee decision later Wednesday. The data gave rise to market worries that the Federal Reserve will introduce a small long term asset buying program to stimulate the economy, rather than a much larger one.
The EUR/USD initially slipped on the data before recouping the ground it lost, although the metals failed to follow its rebound higher. Copper closed 1.4% lower at $8,319 a metric ton. Oil prices settled higher Wednesday, holding on to early gains as the Federal Reserve's widely anticipated decision to stimulate the economy followed a bigger than expected decline in U.S. fuel inventories. Light, sweet crude oil for December delivery settled up 79 cents, or 0.9%, at $84.69 a barrel on the New York Mercantile Exchange.
The contract is up 4% for the week after hitting six month highs of $85.36 a barrel earlier in the session. Brent crude oil on the ICE futures exchange settled 97 cents higher at $86.38 a barrel. Gold prices whipsawed in after market trade Wednesday, as investors were skittish after the Federal Open Market Committee announced the long-awaited Treasurys purchasing program, with gold futures oscillating wildly around their settlement price before paring earlier losses. The most actively traded contract, for December delivery, settled down 1.4%, or $19.30, at $1,337.60 per troy ounce on the Comex division of the New York Mercantile Exchange ahead of the FOMC announcement.
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