US markets pause ahead of FOMC decision

Wednesday, December 18, 2013

US markets struggled with direction yesterday as investors remained on the side-lines ahead of the FOMC rates announcement and Bernanke’s last press conference as Chairman of the US Fed. Both the S&P 500 and DJIA ended the day marginally lower, closing down 0.31% and 0.06% respectively. Better than expected housing market data released yesterday further fuelled speculation among market participants that tapering could be announced today as the NAHB housing market index came in at 58 in December, well above the median estimate of 55 compiled in a Bloomberg survey. Trading is expected to remain choppy throughout the day as investors hold off until the Fed releases further details of its plans, analysts expect the FOMC to leave the Fed funds target rate unchanged at 0.25%.

Asian markets rose in overnight trading ahead of the Fed decision today as a weaker yen supported exporters, leading to a 2.0% gain in the Nikkei while the TOPIX added 1.48% throughout the session. Investors have adopted a wait-and-see attitude in the run up to the results of the Fed meeting but were responsive to trade data released yesterday which showed the trade deficit increasing to levels last seen in January as imports increased 21.1% y/y and exports grew 18.4% y/y in November. Chinese equity indices struggled with direction but were largely trailing Japanese equities as the CSI 300 closed flat and the Shanghai Composite shed 0.1% while the Hang Seng added 0.37%. The positive Asian market sentiment could indicate that market participants expect the Fed to hold off from announcing a start to tapering in December, but sentiment was boosted by the stronger than expected trade data ahead of the sales tax increase next year.

China’s benchmark seven day repo rate increased to its highest level in six months, reaching 6.28% on speculation that the central bank will further relax the control on borrowing costs. Rates spiked above 11% in June on credit crunch fears and market participants anticipate short terms rates will remain at higher levels as policy makers loosen controls owing to higher demand.

 Housing market continues steady recovery

USHBMIDX Index National Associa 2013 12 18 07 29 43

Japanese trade deficit increases to levels last seen in January

JNTBAL Index Japan Trade Statis 2013 12 18 07 41 07

Seven day repo rate in China rises to six month high

RP07 Index CHINA INTERBANK REPO 2013 12 18 07 49 24

Events for today: Wednesday, 18 December 2013

0900

DE

Dec

Ifo Business survey

0930

UK

Nov

Claimant Count & ILO unemployment

0930

UK

Dec

BOE minutes

1330

US

Nov

Housing starts

1330

US

Nov

Building permits

1530

US

w/e

EIA Energy Stocks

1900

US

Dec

FOMC rate

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