Fed to Increase Treasury Purchase by $600 Billion, Dollar Falls

Bikram Pandey
03 Nov, 2010
New York City

Federal Reserve proposed $600 billion U.S. Treasuries purchase program. The larger than expected program lifted the stocks in the late afternoon trading but the prospects of additional monetary stimulus dimmed with the shift of power structure in the U.S. Federal Reserve also left the rates on hold.

[R]4:30 PM New York – Federal Reserve proposed $600 billion U.S. Treasuries purchase program. The larger than expected program lifted the stocks in the late afternoon trading but the prospects of additional monetary stimulus dimmed with the shift of power structure in the U.S. Federal Reserve also left the rates on hold near zero, where they have been for nearly two years.[/R]

Federal Reserve as expected said it would buy long-term U.S. Treasury securities of $600 billion, more than as much as $500 billion expected. The program is expected to double the Federal Reserve holdings of Treasury securities to as much as $900 billion as it reinvests proceeds of mortgage payments.

The rate decision committee also voted 9 to 1 to keep the fed funds rate range unchanged near zero. The rates have held the same since December 2008 and are likely to hover near zero for the foreseeable future.

The statement released by the New York Federal Reserve, the managing arm of the bond purchase for the Fed said that the program will consider all bonds between 2 years and 30 years maturity, “with an average duration of between 5 and 6 years.”

The Fed has stepped back in providing a large stimulus after the recent events Europe originating Greece and reverberating around the world and the change of power structure in Washington. The ability of the Fed to provide more monetary stimulus in the next year may stunted after the Republican controlled House is likely to cuts in government spending and smaller balance sheet at the Fed.

U.S. stocks traded higher on optimism that the Fed will announce further monetary easing. U.S. private sector employment rose more than expected in October but refinancing declined despite low interest rates. Aetna net soars 53%. Electronic Arts Inc loss narrowed 49%.

CVS Caremark Corp. third quarter revenues declined 3% reflecting weak performance at pharmacy services. Electronic Arts Inc revenue fell 20% and losses narrowed 49%. Hertz Global Holdings, Inc net income surged 143% on strong growth in car rental unit and lower fleet costs.

The European indexes traded sideways after OECD area inflation edged higher in September. Iceland Central Bank lowered key rate. Societe Generale net more than doubled due to lower loan-loss provisions. BMW AG lifted its full year outlook but the stock declined.

The UK indexes gained after service sector growth improved unexpectedly and net reserves rose in October. Irish jobless rate fell in October. Rolls-Royce won $200 million order by Tunisair.

Tokyo markets are closed today but the yen traded lower from its recent 15-year high in London and other markets. Stocks declined in yesterday’s trading ahead of the U.S. elections and Fed rate decision.

Stocks in mainland China declined but in Hong Kong increased on the prospects of more stimulus in the U.S. Resource stocks in Shanghai declined on the ongoing rate and tightening worries after the People’s Bank of China issued a statement. Bank of China and ICBC closed higher.

Stock in Mumbai closed higher. CESC Ltd increased 1.7% after net profit rose 23%. GAIL (India) Ltd rose after net profit increased 29.5%. Fortis Healthcare Limited gained 1.4% after net profit surged four-fold. T.V. Today Network Ltd. plunged 4% after net loss of Rs 7.6 crore.

Caribbean markets closed mixed with the slight positive bias. Jamaica Broilers led the most active list in Kingston followed by NCB of Jamaica. U.S. markets closed higher and the dollar declined as the Republican Party is set to make gains in the U.S. midterm elections.

Commodities, Currencies and Yields

Dollar edged down against euro to $1.41 and rose against the Japanese yen to 81.27. One UK pound fetched $1.60.

Crude oil increased $0.87 to $84.77 a barrel for a front month contract, natural gas edged lower 2 cent to $3.84 per mBtu and gasoline increased 2.40 cents to 213.44 cents.

Gold decreased $16.50 in New York trading to close at $1,340.40 per ounce, silver decreased $0.15 to $24.68 per ounce and copper for the front month delivery decreased 2.90 cents to $3.81 per pound.

Yield on 10-year U.S. bond increased to 2.62% and on 30-year U.S. bond yield increased to 4.07%.