Stocks flat, US Dollar declines following FOMC minutes
Wednesday’s highly anticipated FOMC meeting minutes were a difficult read for investors, who spent the balance of the day gauging the Fed’s timetable for stimulus reduction. The June 18-9 FOMC meetings gave the market a much clearer timetable on the future of US monetary policy, and Wednesday’s meeting minutes reaffirmed that the end of QE3 was nearing. The minutes revealed that several Fed policymakers supported the move to begin tapering soon, lending greater support to cautious investors who have spent the better part of three weeks preparing for the post-stimulus economy.
Despite clear support for tapering, the timetable for rollback isn’t as cut and dry as some market participants anticipate. The minutes also revealed what Fed chairman Ben Bernake has been saying all along: Namely, that stimulus reduction would not commence without more assurance that recovery was on the right track. Several policymakers emphasized that employment would have to improve before the Fed slowed the pace of its monthly asset purchase program. This message appears to have been lost over the past few weeks, reflecting imbalance in the Fed’s messaging.
The Fed was hugely effective in laying out its timetable for stimulus tapering, but was less successful in managing the market’s expectations. The market took Bernake’s post-FOMC remarks as an indication that tighter monetary conditions are over the immediate horizon. Over the past three weeks the markets have behaved on the expectation that tapering was indeed just around the corner.
The markets responded much differently on Wednesday. US stocks were flat for most of the day, ending four consecutive days of strong growth. The S&P closed New York trade unchanged at 1,652.62. The Dow Jones Industrial Average declined 0.06 percent to close at 15,291.66. The only bright spot on the day was the NASDAQ Composite, which advanced another 0.47 percent to close at 3,520.76.
The US dollar index declined sharply following the release of the minutes, closing the day at 82.61 (-1.70 percent). The dollar declined sharply against the euro, sending EURUSD to 1.3136 (+0.93 percent).
In a rare turn of events, commodities ended the day as winners, as risk sentiment improved. WTI crude soared to $106.91 a barrel, whereas Brent, the global benchmark, advanced to $108.51 a barrel. Gold futures were also up more than 3 percent to close at $1,285.20 an ounce.
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