Fed Signals Low Rates

Darlington Musarurwa
24 Jun, 2009
New York City

The Fed left its key rate unchanged as expected. The central bank also said that low rates may be in place for extended period of time and indicated that economy remains fragile and the sustained recovery will occur over a longer period.

[R]4:00 PM New York, 9:00 PM London, 6:00 AM Sydney – The Fed left its key rate unchanged as expected. The central bank also said that low rates may be in place for extended period of time and indicated that economy remains fragile and the sustained recovery will occur over a longer period.[/R]

The Federal Reserve after its two day meeting left fed fund rates on hold. The Fed also signaled that rates may stay low for an extended period of time to provide support to lending and housing market.

The Fed is caught between the need to stimulate the economy and yet not stoke inflation as worried by bond markets. The central bank will continue to buy long term Treasuries and mortgage loans to keep the long term rates lower and keep various direct lending programs in effect. Long term rates have been on the rise.

The Fed did not announce any new programs but indicated that the economic recovery may take a long time.

Earlier in the day, durable goods orders increased 1.8% in May matching the gains in April and existing home sales declined 0.6% in May from April and 33% lower from a year ago month. The seasonally adjusted homes for sale represented 10.2 months of supply.

Supervalu led the decliners in the S&P 500 index with a loss of 12%. AeroVironment fourth quarter net down 9%, Shares up. American Greetings first quarter earnings declined 25%. Net income at Monsanto fell 14% and Oracle declined 7%.

European markets recovered in the afternoon trading. The OECD deepened its estimate of recession in Germany and UK but lifted its outlook among 30 member nations. Steel products distributor surged 5.1% after it indicated 1.6 billion euro capital for acquisition.

UK stocks surged after a rebound in mining companies. The better than expected U.S. durable goods orders lifted stocks in UK and Europe. The OECD forecasted deeper recession for UK and slower recovery in 2010. Better than expected profits lifted Stagecoach, Imagination Technologies and Inchcape.

Japanese exports fell 40.9% in May after falling 39.1% in April. The decline in exports to Asia and the U.S. was larger than expected. Investors overlooked the exports weakness and bid up electronics and machinery makers. Retailers fell on the worries that consumer spending is uncertain.

Stocks in Mumbai gained despite the weakness in commodities prices and worries about the government issuing large amount of debts to fund fiscal deficit. Educomp Solutions surged after it formed a joint venture with UK based Pearson Plc for vocational training. ONGC reported 16% decline in earnings.

Investors in Australia were cautious ahead of the U.S. rate decision. Gold and crude oil prices edged higher. Lion Selection and Catalpa Resources agreed to merge to create a mid-tier gold producer. On the last day of rights offering Rio Tinto share edged higher.

North American Markets

Dow Jones Industrial Average decreased 23.05 or 0.3% to a close of 8,299.86, S&P 500 Index increased 5.84 or 0.7% to 900.94, and Nasdaq Composite Index edged higher 27.42 or 1.6% to close at 1,792.34. Toronto TSX Composite Index closed up 204.21 or 2.1% to 10,100.93.

Of the stocks in S&P 500 index, 385 increased, 108 declined and 7 were unchanged.

Supervalu Inc led the decliners in the S&P 500 index with a loss of 12% followed by losses in Tesoro Corp of 6%, in Boeing Company of 5.8%, in Monsanto Company of 4% and in Autozone Inc of 3.5%.

Legg Mason Inc led gainers in the S&P 500 index with a rise of 11% followed by gains in of AES Corp 10%, in Oracle Corporation of 7% and in International Paper of 6.7%.

South American Markets Indexes

Mexico Bolsa Index increased 214.85 or 0.9% to 23,711.24. Brazil Bovespa Stock Index decreased 141.46 or 0.3% to 49,672.12.

Argentina Merval Index increased 2.6%, Chile Stock Market Select index edged higher 0.06%, Peru Lima General Index added 3% and Colombia IGBC General Index decreased 0.2%.

Europe Markets Review

In London FTSE 100 Index closed higher 49.96 or 1.18% to 4,279.98, in Paris CAC 40 Index increased 67.94 or 2.18% to close at 3,184.76 and in Frankfurt DAX index higher 128.86 or 2.74% to close at 4,836.01. In Zurich trading SMI increased 122.11 or 2.29% to close at 5,443.42.

Asian Markets Review

The Nikkei 225 Index in Tokyo closed higher 40.71 or 0.43% to 9,590.32, Hang Seng index in Hong Kong increased 353.78 or 2.02% to 17,892.15, CSI 300 index in China higher 36.84 or 1.19% to 3,120.73. ASX 200 index in Australia increased 10.10 or 0.27% to 3,807.00. The KL Composite index in Malaysia closed higher 13.37 or 1.28% to 1,057.85.
The Kospi Index in South Korea increased 3.25 or 0.24% to close at 1,363.79.SET index in Thailand closed higher 11.58 or 2.03% to 581.43 and JSE Index in Indonesia increased 81.29 or 4.25% to 1,995.67. The Sensex index in India increased 98.72 or 0.69% to 14,422.73.

Commodities, Metals, and Currencies

Crude oil decreased $0.68 to close at $68.56 a barrel for a front month contract, natural gas decreased 11 cents to $3.77 per mBtu and gasoline decreased 4.04 cents to 185.28 cents.

Wheat futures closed down 0.75 cents in Chicago trading to $5.75 a bushel. Sugar increased 0.15 cent in trading at 17.13 cents a pound. Soybean future closed up 3.5 cents to $10.08 a bushel.

Gold increased $7.80 in New York trading to close at $932.10 per ounce, silver closed up $0.019 to $13.89 per ounce and copper for the front month delivery increased 6.40 cents to $2.276 per pound.

Dollar edged higher against euro to $1.3932 and closed down against the Japanese yen to 95.55.

Yields on 10-year U.S. bonds increased to 3.69% and with 30-year maturities closed down at 4.44%.