Fed Trimmed Stimulus and Lifted Target Rates for Next Two Years

Nichole Harper
18 Jun, 2014
New York City

Stocks on Wall Street turned higher after Fed trimmed its bond buying program for the fifth meeting in a row and cited improving labor market conditions and business spending. Fed also raised its estimate of rates for the next two years.

[R]3:40 PM New York – Stocks on Wall Street turned higher after Fed trimmed its bond buying program for the fifth meeting in a row and cited improving labor market conditions and business spending. Fed also raised its estimate of rates for the next two years.[/R]

Stocks on Wall Street rose above morning doldrums after the Fed trimmed bond buying program for the fifth meeting in a row to $35 billion and raised the interest rate outlook in the long term.

S&P 500 index increased 9.81 to 1,951.80 and the Nasdaq Composite Index added 14.27 to 4,351.32.

Fed officials estimated target rate to increase to 1.13% at the end of 2015 and 2.5% in 2016.

The Fed statement also lowered long-term growth for the U.S. economy of 2.1% to 2.3%, compared to 2.2% to 2.3% in March estimate.

The Fed cited improvement in economic activities and noted a “general improvement” in labor market and a resumption in business spending.

Policy makers approved the trimming of the bond buying program by $10 billion to $35 billion and the Federal Open Market Committee repeated earlier statement to “reduce the pace of asset purchase in further measured steps.”

Fed also noted that rates are likely to remain low for a “considerable time” after the bond purchase program ends.

European Markets

In London trading, FTSE 100 index gained 0.3% or 17.66 to 6,784.43 and in Frankfurt the DAX index rose 0.2% or 20.14 to 9,940.46.

In Paris, CAC 40 index inched lower 0.05% or 2.25 to 4,533.82.

In European corporate earnings news, Berkeley Group profit surged 40% to £293 million on 18% increase in revenues. BMW plans to reduce operating costs by €4 billion. First Quantum Minerals agreed to acquire Lumina Copper for $470 million. Premier Foods spun off its brand business.

Asian Markets

Stocks in Tokyo close higher and market indexes gained and yen trading was in focus after investors sought the safety in currency on the rising tensions in Iraq.

The Nikkei 225 Stock Average jumped 139.83 or 0.9% to 15,115.80 and the broader Topix index increased 10.95 to 1,249.15.

The yen weakened to close at 102.28 against one U.S. dollar.

Japan Trade Deficit Declined

Japan reported trade deficit declined for the 23rd month in a row.

Japan’s trade deficit narrowed to 909 billion yen or $8.9 billion, 23rd monthly decline in a row and dropped 8.3% from a year ago month.

Imports dropped 3.6% to 6.516.5 trillion yen down for the first time in 19 months and exports fell 2.7% to 5.6076 trillion from a year ago, first decline in 15 months.

In May, exports to China rose 0.4% to 1.0497 trillion yen while imports slumped 2.7% to 1.4191 trillion yen, the first drop in 17 months from a year earlier.

Export to the United States fell 2.8% to 1.0107 trillion yen, a decline for the first time in 17 months, and imports slid 0.5% to 611.2 billion yen.

Exports to the European Union climbed 14.5% to 606.0 billion yen and imports jumped 5.7% to 652.8 billion yen from a year ago period.

In corporate news, Kobe Steel forecasted a return profitability in the current year. Seven & I plan to expand to Dubai in 2015.

The Sensex Index declined 274.94 or 1.1% to close at 25,246.25 The CNX Nifty slipped 73.50 to 7,558.50.

Cipla agreed to acquire 60% stake in a Sri Lankan company for $14 million. Kotak Mahindra won an approval to increase foreign investment ceiling to 40%.

Reliance Industries Limited plans to invest $11.7 billion in telecom business and expected the approval of higher natural gas price in the next budget.

U.S. Stocks in Review

Adobe Systems Inc ((ADBE)) surged 7.8% or $5.29 to $72.83 after the software publisher reported total revenue in the second-quarter ending in May advanced 5.9% to $1.07 billion.

Net income in the quarter soared 15.7% to $88.5 million or 17 cents a diluted share compared to $76.5 million or 15 cents.

FedEx Corporation ((FDX)) climbed 4.8% or $6.77 to $147.08 after the air-freight and logistic company reported revenue in the fourth-quarter ending in May rose 3.5% to $11.8 billion.

Net income in the quarter surged 140.9% to $730 million or $2.46 a diluted share compared to $303 million or 95 cents.

The company forecasted diluted earnings per share for the fiscal 2015 between $8.50 and $9 and capital spending to increase to about $4.2 billion.