Interpretation of Fed Minutes supports equity market
The US Federal Reserve yesterday released minutes from its July meeting. The minutes indicate that officials have started moving towards an interest rate increase rates earlier than previously expected as target objectives appear to be achieved sooner than anticipated.
The Federal Reserve Chairperson Janet Yellen had committed to use monetary policy to strengthen the labor market as long as inflation remained in check. The minutes indicate that the Fed intends to end bond purchases in October and maintain rates at current levels for a ‘considerable time’. Futures markets see a 52 percent chance that rates will increase rates by July 2015 although data still indicates that a gap exists between current labor market conditions and normal levels of employment.
Meanwhile the Standard & Poor’s 500 Index gained for a third successive day and is now within two points of an all-time high.
Asian stocks excluding Japan fell for the first time in 9 days a Chinese manufacturing index compiled by HSBC dropped more than economist forecast. The index may indicate that while a Chinese recovery is still on track, however, the pace has slowed considerably. The slowdown in manufacturing follows a slump in credit expansion and a slowdown in investment spending in July.
European stocks opened flat following indications that the US Federal Reserve will stop is buyback program in October but will continue to support the economy with lower rates. Miners slipped after the disappointing manufacturing survey in China.
In Austria, Raiffeisen Bank International surprisingly reported that it expects no significant impact from western sanctions against Russia.
Air Berlin climbed 8.5 percent as Germany’s second-largest airline reported a profit following a loss in the same period last year.
Tensions between Russian and Ukraine are again affecting natural gas prices in Europe. While gas flows to Europe probably will not be disrupted as supplier Gazprom is dependent on revenues from Europe, Ukraine has hinted that it is ready to stop the flow of gas through its territory. The stand-off, however, is particularly complex since Ukraine is seeking closer ties with the EU.
Samung Electonics Co. has accumulated cash reversed much larger than Apple’s now famous cash pile. However, the Korean government in an effort to force firms from hoarding cash has laid out plans to introduce a tax on excessive cash. The intention is to force firms to either invest the cash or distribute it to shareholders.
Apple Inc. climbed to an all-time high as expectations for upcoming products mount. Apple is expected to launch a bigger-screen iPhone in September. This should be followed by a series of new product in 2015. The price makes Apple the world’s most valuable company.
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