While you were sleeping: Fed ends asset purchases

Thursday 30th October 2014

Wall Street and US Treasuries fell, extending earlier losses, after Federal Reserve policy makers ended its monthly bond-buying program and signalled they saw “sufficient underlying strength in the broader economy.”

“Labour market conditions improved somewhat further, with solid job gains and a lower unemployment rate,” the Federal Open Market Committee said in a statement at the end of the two-day meeting. “On balance, a range of labour market indicators suggests that underutilisation of labour resources is gradually diminishing."

“Although inflation in the near term will likely be held down by lower energy prices and other factors, the Committee judges that the likelihood of inflation running persistently below 2 percent has diminished somewhat since early this year,” the Fed said.

In afternoon trading in New York, the Dow Jones Industrial Average fell 0.30 percent, the Standard & Poor’s 500 Index declined 0.63 percent, while the Nasdaq Composite Index slid 0.88 percent.

Declines in shares of DuPont, and those of General Electric, last down 1.8 percent and 1.3 percent respectively, led the Dow lower.

"I was pleasantly surprised that they removed the reference to there being significant underutilisation of labour resources," Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management in Menomonee Falls, Wisconsin, told Reuters. "I think that is a hat tip to some of the progress being made in the labour market."

The Fed was more optimistic about the progress of the recovery in the US economy than some had expected, especially given concern about economies elsewhere particularly in the euro-zone and China.

“Moreover, the Committee continues to see sufficient underlying strength in the broader economy to support ongoing progress toward maximum employment in a context of price stability,” the Fed said.

US Treasuries also slid, pushing yields on the 10-year note six basis points higher to 2.36 percent. The greenback, however, gained.

“They were more upbeat on the economy and the employment situation than people thought,” Thomas Roth, senior Treasury trader in New York at Mitsubishi UFJ Securities USA, told Bloomberg News. There was ‘‘no mention of effects of global weakness.’’

Meanwhile, shares of Facebook sank, last down 6.2 percent, after the company announced an increase in spending next year and forecast fourth-quarter sales that failed to meet the mark of some analysts.

At least 15 brokerages downgraded their price targets on the stock, by as much as US$8 to as low as US$78, according to Reuters.

Shares of DuPont fell after Chief Executive Officer Ellen Kullman said its conglomerate structure will deliver “superior value” amid calls from activist investor Nelson Peltz's Trian Fund Management to split the company in two.

“Our board of directors, our management team and I are confident our plan will deliver sustained and superior value for our shareholders,” Kullman said on a call with analysts, Bloomberg News reported.

In Europe, the Stoxx 600 ended the day with a 0.5 percent decline from the previous close. France’s CAC 40 fell 0.1 percent. Germany’s DAX added percent, while the UK’s FTSE 100 Index gained 0.8 percent.

BusinessDesk.co.nz

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