ASX follows Wall Street record highs as Federal Reserve begins to downscale COVID-19 stimulus

Australian equities were likely to open higher today as Wall Street closed at its highest level ever after the US Federal Reserve confirmed it would start liquidating some of its stimulus from the COVID era this month.

ASX futures rose 0.3 percent to 7,388 points at. 7:10 (AEDT).

The Australian dollar was marginally higher at 74.52 US cents (up 0.3 per cent).

On Wall Street, the Dow Jones index closed 0.3 percent higher at 36,158 points, the S&P 500 added 0.7 percent to 4,661, and the Nasdaq jumped 1 percent to 15,812. All three indices ended up trading to new record highs.

The Dow and S&P spent much of their day in the red, but turned positive after the Fed announced its eagerly awaited political decision. “The Fed did not rock the boat with this one,” said Ryan Detrick, chief marketing strategist at LPL Financial. .

“It was pretty well telegraphed what the Fed could do, and they did what most people expected.”

Oil prices fell overnight after industry data revealed a larger-than-expected build-up of U.S. crude oil inventories. Futures on Brent oil fell 4.1 percent to $ 81.22 per share. barrel.

Spot gold fell 0.9 percent to $ 1,771.76 per share. ounce.

The United States withdraws COVID stimulus

The US Federal Reserve said it will begin reducing its monthly bond purchases by $ 15 billion in November with plans to close them by 2022.

But the Fed held on to its belief that high inflation would prove to be “transient” and likely not require a rapid rise in interest rates.

It pointed to global supply difficulties to increase the risk of inflation, saying that these factors “are expected to be temporary”, but that they would have to ease to deliver the expected fall in inflation.

“As the pandemic subsides, supply chain bottlenecks will subside and job growth will pick up again,” Fed Chairman Jerome Powell said at a news conference following the release of the central bank’s latest political statement.

In its statement following the conclusion of a two-day meeting, the Fed said that in light of “significant further progress” in the economy, it would begin to cut its bond purchases, as was generally expected.

This marks a formal shift away from policies introduced in March 2020 to combat the sharp downturn and massive layoffs caused by the COVID-19 pandemic.

But even by announcing a $ 15 billion monthly cut to its $ 120 billion in monthly purchases of government bonds and mortgage-backed securities (MBS), the Fed did little to signal when it could begin the next phase of policy “normalization” by raising interest rates.

“Economic activity and employment have continued to strengthen,” the Federal Open Market Committee (FOMC) said in a statement.

But the FOMC did not change its intention to leave the benchmark US day-to-day interest rate close to zero until inflation had hit 2%. and was “on the verge of moderately exceeding 2 per cent for some time”.

In general, the central bank said it still believed that the recent high inflation would slow down, but the slight change in the language indicated that Fed officials saw the process take longer.

Inflation, according to the Fed’s preferred target, the price index for personal spending, has been running at double the target rate since May, but officials are reluctant to change their policy outlook until it is clear that the pace of price increases will not ease by itself.

ABC / Reuters


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