OVERNIGHT MARKETS ROUND UP – 30/01/2014

Investors will be keenly watching the markets today to see what reaction we will have to the Federal Reserve’s decision to taper bond buying further last night. In what was a unanimous decision, Federal Reserve policymakers decided to trim bond buying for a second straight meeting. The Fed will cut bond purchases by a further $10 billion to $65 billion, citing improving labour market conditions and encouraging economic growth. 

In what was Bernanke’s last FOMC meeting as Chairman of the Fed, the incoming Chairman Janet Yellen has been left in an envious position of having a united group behind her. The tapering strategy has forced policymakers to come together amid concern that the Fed’s record $4.1 trillion balance sheet risks causing asset price bubbles, whilst more needs to be done to reduce unemployment. 

The Fed have stressed that bond purchases are not a pre-set course and will be divided between $35 billion in Treasuries and $30 billion in mortgage debt. Additionally, the interest rate will be held near zero “well past the time” that unemployment falls below 6.5 percent. This is especially true in circumstances where inflation remains below the committee’s goal of 2 percent. European equity gauges are edging slightly higher whilst Treasuries also registered gains. 

Asian stocks did however fall overnight, heading for the largest monthly slide in 8 months. Whilst tapering fears contributed, contraction in Chinese manufacturing has weighed heavily on the MSCI Index. The measure has dropped 4.7 percent in January setting it on course for the biggest monthly slump since May, sparked by weaker than expected economic data from China and a sell-off in emerging market currencies.