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United States 2 Year Yield Hits 1% Awaiting FOMC
For 79% stocks that advanced, only 19% declined.
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Every second monetary policy meeting the US Federal Reserve’s Federal Open Market Committee (FOMC) offers updated economic forecasts, along with member forecasts for the projected path for the Fed funds rate in the years ahead. According to the Committee, the economic activity has been growing at a moderate pace, in spite of the global economic and financial developments of recent month. They also tend to agree with Dr Yellen that interest rates are too low, and that poses risks to financial stability. Despite forecasting inflation rate to remain below 2% target “in the near term”, Yellen said: “The committee continues to feel that we are on a course where the economy is improving and inflation is moving back up”.
The Fed cut the 2016 inflation forecast to 1.2% from 1.6% and all the bands of inflation forecasts top out at 2% out to 2018. While a key inflation measure, core PCE projection was kept in line with earlier estimate of 1.6%. Higher interest rates won’t be good news for their repo financing. Base metals are expected to climb today but will continue to diverge.
Deutsche Lufthansa AG fell 5.8 percent after the carrier forecast weak earnings growth this year, as low ticket pricing meant it couldn’t fully benefit from cheap oil prices. Dollar-denominated oil, copper and zinc all jumped by more than 2 per cent, with Brent trading above US$40 a barrel, helping the MSCI Asia Pacific Indexpost its biggest increase in two weeks.
Oil prices rebounded from overnight losses after reports emerged that a meeting between oil producers to discuss freezing production may take place next month even without Iran. OPEC President’s positive statement also helped in boosting crude prices. Healthcare, meanwhile, fell 0.3%, as specialty pharmaceutical companies like Mallinckrodt (MNK), which was the worst performer in the S&P 500 after dropping 6.4% to $55.69, continued to get pummeled (and that had little to do with the Fed). Dow component, Chevron Corp ( CVX ) gained 1.2%. Yet core inflation has consistently remained well below the Fed’s 2% objective – that is until the February Consumer Price Index (CPI) report from the Department of Labor. This was preceded by no change in January.
The Australian dollar was steady at $0.7543 after jumping 1.2 percent on Wednesday and the Canadian dollar was also firm at C$1.3122 to the dollar after rallying almost 2 percent to a four-month peak of C$1.3094 overnight. In addition, household spending increased and the housing sector has shown further improvement.
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Japanese shares retreated, with banks coming under heavy selling pressure after BOJ Governor Haruhiko Kuroda said it was theoretically possible for the central bank to push rates down to minus 0.5 percent. However, building permits in February decreased 3.1% from January’s figure to 1,167,000, less than the consensus estimate of building permits decreasing to 1,203,000. US output slid to the lowest level since November 2014 and inventories expanded by 1.3 million barrels, the smallest increase in five weeks, data showed Wednesday.