US Federal Reserve make move to bolster economic growth

Rivkin Investment Team

The major news from overnight came in relation to the US Federal Reserve, who, faced with a sluggish US economy, announced their first attempt to bolster economic growth in over a year, by buying government debt in an effort to keep borrowing costs at low levels.

Not surprisingly, bond prices rallied, sending yields (interest rates) as low as 2.7592, their lowest level since April 2009. (See second chart below).

The US dollar index, after lifting higher throughout the morning, sold off heavily on the news, to be currently at 80.879.

Looking at the equity markets, and the major averages closed lower on Tuesday, with the Dow Jones Industrial Average (DJIA) dipping 54.50 points (-0.51%) to close the day at 10,644.25, while the S&P500 closed 6.73 points (-0.60%) lower at 1,121.06.

The performance of the individual sectors was quite mixed, with the utilities (+0.39%), telecommunications (+0.38%), health care (+0.28%), and consumer goods (+0.03%) sectors all closing higher, while of the decliners, the technology, basic materials, and financial sectors fared the worst, declining by 1.25%, 1.04%, and 0.98% respectively.

Technically, prices again closed well off the intra-day lows, which suggests there is still plenty of buying support around the 1120 to 1110 region. While a pop higher over the next day or two is definitely not out of the question, we continue to believe that prices are nearing the end of a corrective advance, which when complete, will give way to new selling.

The ASX SPI200 (September 10) futures gained 4 points in overnight trade, to be currently at 4511.

Commodity prices were largely weaker, with the CRB Commodity Index declining by 2.31 points (-0.84%) to close at 272.28.