Mixed Signals From The Fed Continue To Rule The Markets

Wall Street equities tumbled yesterday amid renewed worries about when the Federal Reserve might curtail its bond buying program. The sell-off comes one day after Dow closed at a record high as investors cheered upbeat reports on home prices and consumer confidence. But concerns that the Fed might scale back its stimulus policies as the economy improves weighed on the market on Wednesday. Dow Jones fell 106 points, or 0.7%, erasing the previous day’s gains.S&P 500 sank 0.7% and NASDAQ lost 0.6%. Stocks briefly pared losses on Wednesday afternoon following a speech by Boston Fed president Eric Rosengren. Echoing Bernanke’s comments, Rosengren said withdrawing stimulus too soon would hurt the economic recovery. But he reiterated that the Fed continues to monitor incoming economic data and stands ready to increase or decrease the pace of its bond buying. This morning Asian markets are taking cues from the US exchanges with the Nikkei and Hong Kong in the red.

Germany’s consumer confidence has improved from the last month. This supported the euro which moved up by 0.66% against the dollar, posting a positive close at $1.2941.  The US mortgage application declined to 8.8% from 9.80%. This supported the downside in the US markets and the dollar index. The dollar index fell 0.52% against the majors to settle at 83.66. Economic data anticipated from Europe in the form of economic, industrial and consumer confidence may support gains in the euro. The US will release its first quarter GDP data which is expected to improve and may limit the dollar’s losses in the NA session. Eurozone bonds fell across the board on Wednesday, on concern about a potential scaling back of US economic stimulus that has kept financial markets afloat. The European Central Bank, which shored up the eurozone last year, needs to act again to lift the bloc out of recession, the OECD said on Wednesday, calling for bold steps beyond just interest rate cuts.

Across the Pacific, Bank of Japan Gov. Haruhiko Kuroda said no financial system was immune to a possible crisis, and that the global economy hasn’t yet completely shaken off the effects of the global financial crisis. Mr. Kudora has spent the days since Thursday’s 7.3% decline in the Nikkei trying to explain the BoJ position and that bond yield gains were expected and within the banks estimates. He is trying to quell global worries over the aggressive monetary program adopted by the bank and the government.  The JPY is trading at 101.24 off its lows of 103. Exporters are hoping that the yen will remain weaker as they reap the profits and support record highs on the Nikkei.