Fed Prints Money; Buys Treasuries

123jump.com Staff
18 Mar, 2009
New York City

U.S. stocks closed higher, Treasuries surged but dollar declined after Fed offered another plan to spend more than $1 trillion to purchase mortgage securities and debts of the U.S. government. Fed left its target rate range unchanged and offered to provide more credit support to the housing market.

5:30PM New York, 11:30PM Frankfurt, 8:30AM Sydney[R]– U.S. stocks closed higher, Treasuries surged but dollar declined after Fed offered another plan to spend more than $1 trillion to purchase mortgage securities and debts of the U.S. government.[/R]

Global Markets

U.S. stocks traded lower ahead of interest rate decision from the Fed but rebounded and closed sharply higher. Fed maintained its target interest rate range between zero and 0.25% and suggested that the near term outlook is weak.

Fed decided to increase its balance sheet size and purchase mortgage backed securities in order to lower mortgage rates and provide additional liquidity in the housing market. Fed plans to increase its purchase of these securities by additional $750 billion to $1.25 trillion and increase agency debt purchase by additional $100 billion to $200 billion. In addition, Fed plans to purchase up to $300 billion of longer-term Treasury securities over the next six months.

The Fed action lifted U.S. Treasuries and stocks and the dollar declined. The new plan to purchase securities of more than $1 trillion will force Fed to print additional dollar, largest amount since World War II.

The restaurant stocks edged higher after better than expected earnings from Darden Restaurants. Coca-Cola bid to purchase the largest juice company in China was rejected. Sun Microsystems surged on IBM bid.

Sun Microsystems, Inc led gainers in the S&P 500 index with a rise of 64.4%. Adobe Systems Incorporated first quarter earnings falls but above the estimates. Darden Restaurants third quarter net drops 15%. General Mills falls on lower than expected earnings guidance.

Bank of Japan to increase JGB purchases to 21.6 trillion yen per year. Separately the central bank elected to keep its key rate unchanged at 0.1%. Japan’s crude steel output falls 44.2% in February. The yen dropped 0.03% to 98.66 against one dollar.

World Bank lowered economic growth of China forecast to 6.5%. Chinese regulators reject Coca-Cola $2.4 billion bid to purchase Huiyuan Juice, the company with the largest market share. Stocks in Hong Kong rose on short covering and ahead of HSBC rights offering tomorrow.

The Planning Commission of India suggested that economic growth in India is likely to reach as high as 7% on stimulus. Stocks gained on the report that foreign investors increased their purchase of stocks and direct investment in India surged in January.

Australian index of leading economic activities indicators declined in January as domestic economy shrinks and consumers curtail spending. Retailer, David Jones first half profit increased 2.4%. Metals and mining related stocks declined after prices of gold and copper edged lower.

North American Markets

Dow Jones Industrial Average gained 90.9 or 1.23% to a close of 7,486.58, S&P 500 Index increased 16.23 or 2.1% to 794.35, and Nasdaq Composite Index added 29.11 or 2% to close at 1,491.22.

Of the stocks in S&P 500 index, 420 increased, 78 decreased and 2 were unchanged.

Sun Microsystems led gainers in the S&P 500 index with a surge of 78% followed by increase in AIG of 44%, in E*Trade Financial of 40.7%, in Aflac Inc of 30.3%, in XL Capital of 24.2% and in Newell Hartford Financial Services of 24%.

General Mills led decliners in the S&P 500 index with a loss of 11.2% followed by declines in Kraft Foods Inc of 4.4%, in Yahoo! Inc of 4.1% and in Jacobs Engineering Group of 3.8%.

South American Markets Indexes

Mexico Bolsa Index increased 295.43 or 1.53% to 19,620.48. Brazil Bovespa Stock Index gained 631.57 or 1.60% to 40,142.29.

Argentina declined 1.3%, Chile decreased 1.2%, Peru surged 2.4% and Colombia increased 0.4% and Venezuela declined 0.4%.

Europe Markets Review

In London FTSE 100 Index closed lower 52.11 or 1.35% to 3,804.99, in Paris CAC 40 Index decreased 6.94 or 0.25% to close at 2,760.34 and in Frankfurt DAX index higher 8.55 or 0.21% to close at 3,996.32. In Zurich trading SMI decreased 30.46 or 0.63% to close at 4,783.32.

Asian Markets Review

The Nikkei 225 Index in Tokyo closed higher 23.04 or 0.29% to 7,972.17, Hang Seng index in Hong Kong increased 239.08 or 1.86% closed to 13,117.17, CSI 300 index in China higher 10.25 or 0.44% closed to 2,332.65. ASX 200 index in Australia decreased 5.60 or 0.16% closed to 3,446.30. The KL Composite index in Malaysia higher 6.09 or 0.72% closed to 847.96.

The Kospi Index in South Korea increased 6.07 or 0.52% to close at 1,169.95. SET index in Thailand closed higher 3.88 or 0.92% to 426.20 and JSE Index in Indonesia increased 10.74 or 0.82% closed to 1,322.84. The Sensex index in India increased 112.86 or 1.27% closed to 8,976.68.

Commodities, Metals, and Currencies

Crude oil increased $0.39 to close at $49.35 a barrel for a front month contract, natural gas decreased 11 cents to $3.69 per mBtu and gasoline futures decreased 4.03 cents to close at 138.35 cents per gallon.

Wheat futures closed down 22.50 cents in Chicago trading and closed at $5.30 a bushel. Sugar increased 0.13 cents in trading at 13.24 cents a pound. Soybean future closed up 2 cent to $9.15 a bushel.

Gold increased $28.60 in New York trading to close at $945.40 per ounce, silver closed up 23 cent to $12.90 per ounce and copper for the front month delivery increased 4.1 cents to $1.76 per pound.

Dollar edged lower against euro to $1.3462 and fell against yen to 96.32.

Yields on 10-year U.S. bonds decreased to 2.48% and with 30-year maturities decreased to 3.50%.