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While you were sleeping: Fed on long-term pause

Thursday 26th January 2012

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Underpinning today's mixed bag of American corporate results, the Federal Reserve said it will keep interest rates low until at least late into 2014 as the world's largest economy still needs plenty of help.

Economic conditions "are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014," the Fed in a statement.

Disappointing results including from Boeing and Yahoo! showed that the recent signs of an economic pickup won't guarantee corporate profits follow the same path.

Wall Street was mixed. In early afternoon trading in New York, the Dow Jones Industrial Average fell 0.26 percent and the Standard & Poor's 500 Index declined 0.27 percent. However, the Nasdaq Composite Index rose 0.53 percent, lifted by shares of Apple as they surged more than 6 percent to a record on its stellar results.

Of the 108 companies in the S&P 500 that reported results since January 9, 72 posted per-share earnings that beat projections, Bloomberg data show. And that's not good enough.

“It’s going to be a mediocre earnings season,” Russ Koesterich, the San Francisco-based global chief investment strategist for the IShares unit of BlackRock, told Bloomberg. “We’re not going to see robust growth this year and this is being reflected in corporate outlooks.”

Disappointing housing data released today failed to quash optimism that the industry is slowly but surely on the mend. The National Association of Realtors said its Pending Home Sales Index, based on contracts signed in December, fell 3.5 percent in December, exceeding the decline of 1.0 percent economists had anticipated, according to Reuters.

Sales had increased 5.6 percent in the 12 months to December.

"This is potentially negative for January existing home sales although the two do not always go hand in hand," Jennifer Lee, a senior economist at BMO Capital Markets in Toronto, told Reuters. "So does this mean the story has changed and housing is back in the dumps? Nope."

In Europe, the Stoxx 600 Index ended the day with a 0.4 percent decline amid corporate earnings that missed the mark, including from Ericsson and Novartis.

Economic data released today highlighted a growing disparity between economies in Europe as the UK failed to meet expectations, and appears set to fall into recession, while business sentiment in Germany surpassed forecasts.

Britain's gross domestic product contracted 0.2 percent in the fourth quarter of last year from the third quarter, the government said Wednesday.

Meanwhile, Germany's closely watched Ifo business-confidence index rose to 108.3 from 107.3 in December. That's the highest level since August and the largest monthly gain in 11 months. The reading was at the top end of expectations in a Reuters poll of 39 economists that produced a median forecast of 107.5.

"Did anyone say recession? Today's Ifo index shows that the German economy only made a short stopover at the end of last year and is now heading towards expansion again," Carsten Brzeski, an economist at ING in Brussels, told Reuters.

"The widely-spread fear that the euro zone's biggest economy could now also be caught by the crisis virus has been soothed."

Talks between Greece and its private creditors are continuing, after EU finance ministers rejected their latest compromise.


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