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US Fed to Start Reducing Bond Holdings

21 Septembre 2017

The central bank's rate-setting panel, the Federal Open Market Committee, said Wednesday that it will keep the federal funds rate in a range of 1 percent to 1.25 percent.

On Wednesday, the Fed announced it would begin the reductions next month based on a plan approved in June. That helped send bank stocks higher. Many banks, large and small, have projected their profits will increase as rates continue to rise and they are able to earn more from the difference on the rate they charge borrowers compared to what they're paying out. This would bring the target up to between 1.25 percent and 1.50 percent.

Adobe fell 4.5% after the Photoshop maker's revenue forecast came in-line with estimates. The Fed expects joblessness to fall even further, to just over 4 percent, in the next few years.

Western Digital slipped about 6% after Japan's embattled Toshiba said it agreed to sell its semiconductor business to a group led by USA private equity firm Bain Capital.

The Federal Reserve said it would leave interest rates unchanged today, but that a hike remains likely before the end of the year. Bond yields rose, leading to gains for banks but losses for high-dividend stocks like household goods makers and utilities. In particular, see his article "On Shrinking the Fed's Balance Sheet", and his American Banker piece with Norbert Michel on the Fed's precarious balance sheet situation. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is flat at 2.243%.

The Standard & Poor's 500 index inched up 1.59 points, or 0.1 percent, to 2,508.24.

At the end of a closely watched two-day policy meeting on Wednesday the Fed left interest rates unchanged as expected and signalled that it is still on track for one more increase by the end of the year despite recent low inflation. Eight of the 11 major S&P sectors were higher, led by 0.50% gain in the energy index. Safe havens will also come under further pressure if USA yields manage to recover further and given no geopolitical surprises.

The rand's volatility can also make planning hard for companies.

In Australia, the S&P/ASX 200 slipped 0.11% with the telecommunication sector suffering the most losses.

OIL: Benchmark U.S. crude added 35 cents to $50.25 per barrel on the New York Mercantile Exchange.

Bed Bath and Beyond plunged 17 percent after reporting earnings and sales that missed analysts' forecasts. The Dow Jones industrial average gained 0.2 percent to 22,370.80. The Nasdaq composite fell 5 points, or 0.1 percent, to 6,456.

US Fed to Start Reducing Bond Holdings