19.12.2013- Quantitative easing program is reduced, stocks move higher
European stock markets ended the trading day with a steady growth. The reasons for this were expectations of awaited announcement of the meeting of FOMC results, as well as some statistics. So, investors were pleased with the growth rate of the number of housing starts in the U.S., which totaled 1.09 million, against expectations of growth to 0.95. After the close of trading in Europe the Fed announced its vision on the situation in the largest economy of the world and the necessary measures for further stimulation of growth.
According to forecasts of the members of the Federal Open Market Comity, the GDP growth in 2014 will be 2.8%-3.2% and in 2015 - 3.0%-3.4%, unemployment rate will fall to 6.3%-6.6% in 2014 and to 5.8%-6.1% in 2015. Also was announced the intention to leave the rate the Fed at the same level until unemployment rate will fall below 6.5%. As a result, the asset repurchase program will be reduced from 85 to 75 billion U.S. dollars. Further reductions will continue, and will depend on the improvement in the economy and especially in the labor market. Stock markets positively reacted on the results of the meeting. The broad S&P 500 reached its highs and is now consolidated at the level of 1810. Support is still located on 1780. Overall, the market still can continue Christmas rally, so we positively assess possibility of further growth.
Yesterday Euro after a spurt to 1.38 resistance level, began to decline sharply because of dollar strengthening and have reached the bottom of rising channel. Inclined level of support at the same time coincided with the horizontal support located at 1.3660. In case of further decline, the price may reach 1.3620. Today, the course of trading can be affected by the balance of payments in euro area (09:00 GMT) and the data on the number of new jobless claims in the U.S. (13:30 GMT).
After reaching the resistance at 1.6440, the British pound began to decline and now is trading at 1.6370. The reason of growth throughout yesterday's session was a strong data on unemployment in the UK, which decreased by 0.2% and has reached 7.4%. As a result, the pound, unlike the euro, responded not so strongly to the strengthening of the dollar. In the spotlight today will be the retail sales data in the UK (09:30 GMT).
The Bank of Japan stated that there are significant opportunities for increasing the volume of asset purchases, if it will be necessary to achieve target levels of inflation. This fact, together with the strengthening of the U.S. dollar has led to USD/JPY quotations to break through the resistance level of 103.90 and reach the upper limit of the local rising channel. In case of correction, the price can reach the level of 103.90 and 103.40.
The Australian dollar failed to hold above 0.89. Now the price is consolidating at the 0.8850 mark. Further movement is likely to take place within the downward channel. In case of correction the price can reach $ 0.89.
The price of Light sweet crude oil showed very modest growth due to the ambiguity of the future impact of the Fed's policy on the dynamics of oil quotations. On the one hand the reduction of asset repurchase for $10 billion will reduce the flow of funds to the commodities market, on the other hand, the regulator stressed on sustainable economic growth, which should lead to an increase in oil consumption. In addition, oil quotes were supported by a message released yesterday. Oil inventories in the USA decreased by 2.9 million barrels, experts predicted a decline for only 2.4 million barrels. We maintain a long-term bearish outlook for oil prices.
The gold has reached the lower limit of the corridor 1220-1265. The price can fall to 1200 and 1180. Obviously, in case of continuation of Christmas rally, investors will prefer to invest in risky assets, so we do not expect an increase in demand for gold before the New Year. Even the increased consumption of the yellow metal in China will not lead to a significant increase in prices.