STOCKS FALL AS FED FAILS TO GIVE CLARITY
The Toronto stock market finished sharply lower as minutes of the U.S. Federal Reserve’s latest meeting reinforced the view that the central bank will start winding up a key economic stimulus program sometime later this year.
But there was some disappointment that the minutes didn’t provide much in the way of clarity about when the Fed may start winding up its US$85-billion of monthly bond purchases and what the pace of the tapering would be.
Sliding mining stocks led the way to the S&P/TSX composite index closing down 97.03 points to 12,573.08.
The Canadian dollar finished down US0.78¢ at US95.48¢ as the greenback strengthened.
New York’s Dow industrials dropped 105.44 points to 14,897.55, its first close below 15,000 since July 3. Nasdaq was 13.8 points lower at 3,599.79 and the S&P 500 index slid 9.55 points to 1,642.8.
The Fed’s minutes showed that a few policymakers wanted to assess more economic data before deciding when to scale back the central bank’s bond purchases. Others said it “might soon be time” to slow the purchases, which have helped keep long-term rates near record lows.
“There is enough in it for everyone,” said John Stephenson, portfolio manager at First Asset Funds Inc.
“The people who think the Fed will remain stimulative and dovish can say it’s pretty much in black and white, it’s not yet appropriate so stop panicking. And the more hawkish people can say well, it still shows they’re talking about taking it off because they’re broadly comfortable with the plan to reduce the bond buying.”
There is nervousness surrounding the tapering of these purchases since the latest bond-buying program, known as quantitative easing, has also fuelled a strong rally on the U.S. equity markets this year.
“But I think that stimulus being withdrawn should have been factored into the market by now — it’s actually surprising,” added Mr. Stephenson.
He also thinks much of the downward pressure on U.S. markets recently is due to the fact that indexes “have come pretty far and maybe it’s time to lighten up.” The Dow has lost a bit more than 5% since its record high Aug. 2.
Many analysts believe the economy is strong enough to allow the Fed to start tapering its asset purchases as early as September.
Strong housing data out Wednesday bolstered that point of view as the National Association of Realtors said that sales of existing U.S. houses ran ahead 6.5% in July, much higher than the 0.4% rise that economists had expected. That translated into sales at an annual rate of 5.39 million.
Bond yields were higher after the release of the Fed minutes, with the benchmark 10-year U.S. Treasury up 0.06 of a point to a two-year high of 2.88%. Yields started rising in late May after Fed chairman Ben Bernanke first mentioned the possibility of the Fed tapering its asset purchases and have surged about 120 basis points since then.
The base metals sector led TSX declines, down 3.88% and September copper slipped US3¢ to US$3.31 a pound.