Fed Actions Move the Markets

Closing the Week with Forexpros

by Forexpros Staff

U.S. stock prices rose on Friday, buoyed by the Federal Reserve’s announcement it will roll out a third round of bond purchases from banks to stimulate the economy.

At the close of U.S. trading, the Dow Jones Industrial Average rose 0.40%, the S&P 500 index was up 0.40% as well, while the Nasdaq Composite index was up 0.89%.

The Federal Reserve on Thursday announced plans to buy USD40 billion in mortgage-backed securities a month from banks on an ongoing basis until the economy improves, a policy measure known as quantitative easing.

The Fed also said it would continue with its Operation Twist program that sees the U.S. central bank selling short-term Treasury holdings in the market while simultaneously buying longer-term instruments with the aim of keeping interest rates low.

The Federal Reserve will inject a total of USD85 billion a month into the economy a month via its combined stimulus measures.

The Fed also said conditions meriting low interest rates will likely last through mid-2015.

Monetary stimulus measures such as quantitative easing function by pumping liquidity into the financial system in a way that lowers interest rates across the economy, making stocks an attractive investment.

Elsewhere in the U.S. on Friday, the country’s month-on-month consumer price index rose 0.6% in August from 0.0% July.

Analysts had expected CPI to rise 0.5% in August.

Month-on-month core inflation rates rose 0.1% in August compared to 0.1% in July, falling short of market forecasts for 0.2% growth.

Industrial production in the U.S. contracted 1.2% in August compared to a revised 0.5% expansion in July.

Analyst were forecasting industrial production to expand by 0.2% in August.

Consumers, meanwhile, are more upbeat these days, separate data showed.

Thomson Reuters/University of Michigan’s index on consumer sentiment hit 79.2 in September, up from 74.3 in August.

Analysts were expecting a 74.0 reading.

U.S. retail sales figures outpaced expectations as well.

The U.S. Commerce Department said that retail sales rose to a seasonally adjusted 0.9% in August from 0.6% in July, whose figure was revised down from 0.8%.

Analysts had expected retail sales to rise 0.7% in August.

Core retail sales rose 0.8% in August, matching July’s 0.8% growth figure.

Analysts had expected U.S. core retail sales to rise 0.6% last month.

Leading Dow Jones Industrial Average performers included Caterpillar, up 2.71%, United Technologies, up 2.38%, and Alcoa, up 2.18%.

The Dow Jones Industrial Average’s worst performers  included AT&T, down 2.41%, Merck, down 2.35%, and Verizon Communications, down 2.33%.

European indices, meanwhile, finished higher.

After the close of European trade, the EURO STOXX 50 rose 2.02%, France’s CAC 40 rose 2.27%, while Germany’s DAX 30 finished up 1.39%. Meanwhile, in the U.K. the FTSE 100 rose 1.64%.

Gold

Gold prices rose in U.S. trading on Friday, touching six-month highs. On the Comex division of the New York Mercantile Exchange, gold futures for October delivery were up 0.23% at USD1,773.55 a troy ounce, up from a session low of USD1,765.35 and down from a high of USD1,777.55 a troy ounce early during the session.

Gold futures were likely to test support at USD1,765.35 a troy ounce, the earlier low, and resistance at USD1,777.55, the earlier high.

Monetary stimulus measures in the U.S. weaken the dollar to spur recovery, quantitative easing especially, sending gold climbing, in this case, hitting highs not seen since February of this year.

Gold later began to cool its rally, however, as investors sold on sentiment the precious metal is becoming ripe for profit taking.

Elsewhere on the Comex, silver for December delivery was down 0.40% and trading at USD34.640 a troy ounce, while copper for December delivery was up 3.26% and trading at USD3.831 a pound.

U.S. Dollar

The dollar fell against most major currencies Friday.  In U.S. trading on Friday, EUR/USD was up 0.92% at 1.3112.

While weak across the board, the dollar rose against the Japanese yen, however, after Finance Minister Jun Azumi said Japan may be ready to take steps to further weaken the yen.

The greenback, meanwhile, was down against the pound, with GBP/USD trading up 0.40% at 1.6220.

The dollar was up against the yen, with USD/JPY trading up 1.02% at 78.28, and down against the Swiss franc, with USD/CHF trading down 0.86% at 0.9274.

The dollar was mixed against its cousins in Canada, Australia and New Zealand, with USD/CAD trading up 0.25% at 0.9709, AUD/USD up 0.13% at 1.0560 and NZD/USD trading down 0.23% at 0.8290.

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was down 0.44% at 79.03.

Oil

Crude oil futures shot up in U.S. trading on Friday.   On the New York Mercantile Exchange, light, sweet crude futures for delivery in October traded at USD99.46 a barrel on Friday, up 1.17%, off from a session high of USD100.42 and up from an earlier session low of USD98.14.

On the ICE Futures Exchange, Brent oil futures for November delivery were up 0.97% and trading at USD117.00 a barrel, up USD17.54 from its U.S. counterpart.

Natural Gas

Natural gas futures continued lower during U.S. trade Friday, adding to losses after a report from the U.S. Energy Information Administration showed U.S. gas supplies rose less-than-expected last week.

On the New York Mercantile Exchange, natural gas futures for delivery in October traded at USD2.953 per million British thermal units during U.S. morning trade, tumbling 2.70%.

It earlier fell by as much as 3% to trade at a session low of USD2.962 per million British thermal units.

The October contract traded at USD3.017 prior to the release of the U.S. Energy Information Administration report.

The U.S. Energy Information Administration said in its weekly report that natural gas storage in the U.S. in the week ended September 7 rose by 27 billion cubic feet, just below market expectations for an increase of 28 billion cubic feet.

Inventories rose by 80 billion cubic feet in the same week a year earlier, while the five-year average change for the week is an increase of 72 billion cubic feet, according to U.S. Energy Department data.

Total U.S. natural gas storage stood at 3.429 trillion cubic feet as of last week. Stocks were 342 billion cubic feet higher than last year at this time and 284 billion cubic feet above the five-year average of 3.145 trillion cubic feet for this time of year.

Inventory did not top the 3.4-trillion cubic feet level in 2011 until October 5, with stocks peaking at a record 3.852 trillion cubic feet in November of last year.

The report showed that in the East Region, stocks were 80 billion cubic feet above the five-year average, following a net injection of 38 billion cubic feet.

Stocks in the Producing Region were 147 billion cubic feet above the five-year average of 957 billion cubic feet, after a net withdrawal of 13 billion cubic feet.

Market analysts have warned that without strong demand through the rest of the summer cooling season, gas inventories will reach the limits of available capacity later this year.

The storage surplus to last year will have to be cut by at least another 150 billion cubic feet in the 12 weeks left before winter withdrawals begin to avoid breaching the government’s 4.1 trillion cubic feet estimate of total capacity.