Investors cautious following negative statement from the Fed

09.52 AEST, Thursday 25 October 2012

Investors cautious following negative statement from the Fed
By Miguel Audencial (Sales Trader, CMC Markets)

Expect a sluggish start to the Australian equities session today after its US counterpart finished lower in last night’s session. A negative statement about the US employment sector from the Fed reminded investors to be more cautions. The Australian energy sector will face selling pressure today with the price of crude oil lower after inventories increased more than expected.

The US market started the session on a positive note brought about by a higher than expected Flash Manufacturing PMI figures from China. Reported US New Home Sales also posted higher than estimated numbers. The market turned into negative territory after the Fed statement. There was no surprise when the US Fed stuck to its policy of near-zero interest rates and the continuation of it $40 billion a month worth of mortgage backed securities. What was concerning about it was the negative tone in the labour market which remained at elevated levels. Also, the Fed described that the economy is growing ‘modestly’, which is below ‘moderately’ in Fed speak. Concerns are growing over the effectives of QE3.

During the first three quarters of 2012 the equities market rallied whenever there was an increased possibility of QE3. There were instances when bad economic data resulted in good market prices. Now, it seems that the market needs an indication that the Fed will stop its $40 billion a month bond buying to have a sustained rally.

The price of Crude Oil was around 1.1% lower last night after inventories was reported to be significantly higher than expected. The Fed’s uninspiring tone about the US employment condition also did not help its demand prospects.

US Core Durable figures are due later tonight and the market needs to show a figure of an increase of 1% or over to provide more confidence in the market. The weekly US Unemployment Claims figure is also due tonight and market participants will have a close eye on this release given the negative tone about employment levels recently from the US Fed.

http://www.cmcmarkets.com/

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