Fed Lowers Economic Views; U.S. Indexes Sell-off

Bikram Pandey
22 Jun, 2011
New York City

U.S. Federal Reserve maintained its record stimulus program and left its rate target near zero. Fed also lowered its current year growth outlook to as low as 2.7%, lifted core inflation views to 1.5% and unemployment to fall no lower than 8.6%.

[R]4:20 PM New York – U.S. Federal Reserve maintained its record stimulus program and left its rate target near zero. Fed also lowered its current year growth outlook to as low as 2.7%, lifted core inflation views to 1.5% and unemployment to fall no lower than 8.6%.[/R]

U.S. indexes surrendered early gains after Federal Reserve left its bond buy program intact and interest rate near zero. Federal Reserve officials lowered their outlook on the U.S. economy, jobs market and inflation.

Fed statement noted caution about the economy and growth “somewhat more slowly than the committee had expected.”

Fed lowered economic growth 2011 between 2.7% and 2.9% from its previous estimate in April of between 3.1% and 3.3%. Fed also lowered 2012 growth estimate.

The officials at Fed also lifted the core inflation outlook for 2011 to between 1.5% and 1.8% from its earlier forecast of 1.3% to 1.6%. The unemployment is expected to fall to 8.6% to 8.9% in 2011.

The Fed’s view on inflation has increasingly been a suspect as inflation felt my most family has been between 7% and 10%. 123jump.com research has consistently revealed Fed’s view on inflation as benign and largely serving the interest of the government to issue more debt at cheaper cost.

U.S. mortgage and refinancing activity also declined 5.9% at the end of previous week.

In corporate news, Dentsply agreed to acquire Astra Tech from AstraZeneca for about $1.8 billion. Adobe net surged 54% on strong sales but company’s guidance disappointed investors. FedEx fourth quarter net income soared 33% to $558 million. Jabil Circuit third quarter net income surged doubled.

Euro-zone industrial orders rose in April. French business sentiment strengthened and Danish consumer sentiment improved in June. Swedish jobless rate fell in May to 7.9%. Spanish mortgage lending dropped in April by 12.1%. Swiss investor confidence weakened.

The European indexes traded sideways after Greek Prime Minister Papandreou won a vote of confidence yesterday. Markets in Europe rebounded and shifted focus to the passage of austerity measures next week. Philips plunged on weak comparable sales outlook for the second quarter of 2011.

The UK indexes slid after Greek government survived a confidence vote. The minutes showed that the Bank of England policy makers retained the interest rate and asset purchase program by a split vote. Employment intentions in the UK indicated increase in job creation in the six months.

Stocks in Japan rebounded after concerns over Greece eased for now. The Nikkei 225 Stock Average inched above 9,600 and closed at the high for the month. Chain store retail sales declined 1.4% in May. Softbank is likely to reach an agreement with Alibaba Group over its payment gateway technology.

Stocks in Australia rebounded after a weak trading in the last five days. Resources linked stocks gained after Greek government won a parliament vote of confidence. Qantas Airways estimated full year profit of as much as $550 million but international operations continue to make losses.

Commodities, Bonds and Currencies

The 10-year bond yield increased to 2.98% and 30-year bond traded up to 4.21%.

The U.S. dollar decreased to $1.4403 to one euro and fell against the Japanese yen to 80.07 yen.

Immediate delivery futures of Texas crude oil increased $0.60 to $94.77 a barrel and futures of natural gas fell 0.07 cents to $4.31 per mbtu and gasoline price increased 7.9 cents to 296.20 cents a gallon.

In metals trading, copper fell 2.7 cents to $4.08 per pound, gold gained $2.50 to $1,548.90 per ounce and silver increased $0.04 to $36.42.