Markets rise as fed money decision looms
By Lindang uyen
TORONTO • Stock markets in Toronto and New York closed higher Tuesday, with i nvestors showing few worries about the strong possibility that the U.S. Federal Reserve will soon announce it’s ready to start reducing its monetary stimulus.
The S&P/TSX composite index climbed 17.23 points to 12,834.11. The Canadian dollar was up 0.28 of a cent to US97.13¢.
Though hiring and economic growth in the United States remain soft, the Fed is widely expected to slow the pace of its US$85-billion a month in bond purchases as early as Wednesday at the end of its policy meeting.
Most economists predict the Fed’s initial “tapering” move to be small, expecting a reduction of between US$10-billion and US$15-billion in the monthly purchases of Treasury and mortgage bonds.
The program, dubbed quantitative easing, had been put in place to hold down long-term interest rates to stimulate the economy, which in turn has buoyed stock markets.
U.S. indexes were positive, as the Dow Jones industrials jumped 34.95 points to 15,529.73, while the Nasdaq was ahead 27.85 points to 3,745.70.
Both markets were boosted by a 0.39% rise in shares of Microsoft Corp. after the tech company’s board approved a 22% increase to its quarterly dividend along with a new $40-billion stock buyback program. Shares of the Redmond, Wash.,-based company closed 13¢ higher at US$32.93. The stock had traded as low as US$26.26 last December.
The broader market measure, the S&P 500, added 7.16 points to 1,704.76 — just a few points shy of its record high.
North American markets had closed higher on Monday after economist Larry Summers, the frontrunner to head the central bank, bowed out.
Summers had long been perceived as an opponent to the Fed’s aggressive bondbuying program. His withdrawal to succeed current Fed chairman Ben Bernanke had investors predicting that Fed vice-chair Janet Yellen, a supporter of the stimulus program, may be next in line for the top job.
“We’re seeing the second round of reduced optimism from Summers’ withdrawal but that’s finding itself in a tug of war with what’s on deck with the Fed speaking in terms of tapering,” said Kash Pashootan, vice-president and portfolio manager at First Avenue Advisory in Ottawa, a Raymond James company.
“We’re now on to the next hurdle and what the Fed will indicate in terms of the tapering.”
A number of economic releases came out Tuesday, but most economists agreed that the Fed has already made up its mind about pulling back on its stimulus.
The U.S. Labor Department reported that consumer prices barely rose last month, the latest sign that slow economic growth is keeping inflation tame. The consumer price index increased just 0.1% in August, after a 0.2% increase in July.
The Toronto Stock Exchange was mostly positive at the close, as the gold sector registered the highest gain of 1.22%, while December bullion fell $8.40 to US$1,309.40 an ounce.