Fed's operation twist fails to inspire; Antonis Samaras sworn in as Greek PM
As anticipated, the Fed stole the show overnight with the FOMC decision and subsequent press conference the primary market moving themes. Recent session have seen the premise of further stimulus guide price action with notable gains across the risk spectrum but news the Fed will extend its operation twist program failed to induce any sustained bounce. After surging initially, the U.S dollar soon pared gains which promoted strength from risk currencies such as the Aussie dollar which peaked at 7-week highs before easing back below 102-figure in the ensuing period. The Euro followed a similar pattern with a break through $US1.27 levels meeting resistance around the $US1.2740 level before easing below the figure as the session drew to a close. At the very least it appears the Fed have appeased market expectations with the extension of operation twist, but the absence of any new outright initiatives such as a third round of quantitative easing produced significant volatility rather than any sustained bounce across the risk spectrum.
As anticipated the Fed kept rates at record lows and maintained their pledge to keep rates exceptionally low through to 2014. The growth outlook for 2012 was also lowered to between 1.9 and 2.4 percent, against previous projections of between 2.4 and 2.9 percent while lifting unemployment rate expectations between 8 and 8.2 percent. Key U.S indices finished the day slightly lower with the DOW and S&P losing 0.10 and 0.17 percent respectively.
Earlier, European markets finally received a sense of closure to Greece’s political woes with New Democracy Party leader Antonis Samaras sworn in as Greece’s new Prime Minister after successfully negotiating the terms of a cohesive government with the Pasok political party. With a favorable result already priced-in, it appears it was largely a ‘buy the rumor, sell the fact’ scenario with key European indices finishing only slightly higher on the day. Despite what’s turned into years of economic turmoil from Greece, there’s a sense it’s only just the beginning, with Samaras now set to do battle with its bankers (Germany) to renegotiate the terms required to receive further financial aid.
True to form, the final statement from G20 leaders after their two-day meeting in Mexico produced little more than a pledge of solidarity with the forthcoming European Summit now the event expected to yield some concrete initiatives. Leaders vowed to “take the necessary actions to strengthen global growth and restore confidence” with an aim to integrate their banking sector and kick-starting growth.
In the absence of any top tier economic data from Australia, we anticipate regional equity markets will remain the key barometer with the HSBC China Flash Manufacturing PMI the focus later on in the session.