Fed Lowers Growth, Unemployment Views; U.S. Stocks Trim Gains

Bikram Pandey
02 Nov, 2011
New York City

U.S. stocks pared gains after Fed lowered its economic growth outlook for the next three years and estimated higher unemployment. Current year growth was lowered to no more than 1.7% and unemployment as high as 9.1%. A separate report estimate private sector added 110,000 jobs.

[R]4:15 PM New York – U.S. stocks pared gains after Fed lowered its economic growth outlook for the next three years and estimated higher unemployment. Current year growth was lowered to no more than 1.7% and unemployment as high as 9.1%. A separate report estimate private sector added 110,000 jobs.[/R]

U.S. stocks soared after a 2-day slump as commodities rebounded. The focus shifted to domestic earnings and investors bid up stocks in the early trading after MasterCard, Valero Energy and Time Warner reported better than expected earnings.

In addition, private employers added 110,000 net new jobs.

In the afternoon market indexes pared gains after Fed lowered its assessment of economic outlook and estimated economic growth for 2011 between 1.6% and 1.7%, down from its June estimate of growth between 2.7% and 2.9%.

Fed’s quarterly forward looking forecasts on the economy have been far from accurate in the last ten years but it does give window to policymakers’ current thinking. Fed also trimmed its upper bound of economic growth in 2012 to 2.9% and 2013 to 3.5%.

The grim view on the economy also translated in the job markets outlook. The current year unemployment is expected to 9.1% at worst, and in 2012 to 8.7% and in 2013 to 8.2%.

Fed’s rate setting committee did not announce any new measures to revive economic growth as it did after each of the last two meetings in August and in September.

But, the statement released today indicated that the lack of new demand in the market can be addressed in the fiscal policy. The apparent lack of Fed’s ability to do anything only shifted the burden to politicians in Washington.

In U.S. earnings, AOL reported third quarter net loss of $2.6 million. Comcast third quarter net increased to $908 million. Devon Energy third quarter net declined to $1.04 billion. MasterCard third quarter net increased to $717 million. Time Warner third quarter net soared to $822 million.

European markets traded volatile as banks rebounded from the lows. Euro zone manufacturing survey indicated a sharp fall in activities in Italy, France and Germany. Separately, German unemployment rose to 7%.

Stocks in Tokyo trading fell as investors turned cautious after worries on the euro zone and Greek referendum rose. Sony estimate annual loss of $1.2 billion on the rising yen and weak television sales. Shipping companies declined on the falling freight rates.

Australian stocks edged lower after international markets dropped on the rising worries in the euro zone. September construction approval dropped 13.6%. OneSteel fell after it said higher dollar will hurt its first half earnings. Westpac Banking said lending growth slowed and bad debt charges declined.

Commodities, Bonds and Currencies

The yield on 10-year U.S. bond closed up to 1.99% and 30-year bond increased to 3.02%.

The U.S. dollar was nearly unchanged at $1.373 to one euro and closed higher against the Japanese yen to 78.05.

Immediate delivery futures of Texas crude oil increased $0.23 to $92.42 a barrel and futures of natural gas decreased 2 cent to $3.75 per mbtu and gasoline prices increased 0.11 cents to 262.55 cents a gallon.

In metals trading, copper increased 8.30 cents to $3.58 per pound, gold fell $24.90 to $1,736.70 per ounce and silver increased $1.49 to $34.22.