Wall Street was confident enough to be up 70 points on the Dow ahead of the US Federal Reserve’s announcement at 6.15 am.
Investor confidence was really a no brainer, with expectations of no change in interest rates a foregone conclusion.
In the event, the US central bank again sat on interest rates and again pointed to the continuing sluggishness of the economy in its post-meeting statement.
Earlier in the day reasonable retail sales for November had buoyed the market.
Sales rose 0.8% in November (and 1.2% excluding cars and car parts).
Investors grabbed this as evidence that the tentative recovery was gathering pace, ignoring the surprise announcement from Best Buy, America’s biggest electricals retailer, that sales and earnings had missed their mark in the third quarter and would be weak for the remainder of the year.
Best Buy’s quarter included the start of the huge post Thanksgiving sales called Black Friday, but investors ignored this inconvenient point and went on buying retail shares.
Ahead of the Fed’s announcement, yields on US Government bonds ground higher, rising a solid 0.10% to hit 3.38% for the 10 year security.
They then sold off after the statement to end at 3.45%, up a massive 0.17% on the day, which is much larger than the 0.12% gain a week ago yesterday that startled global markets.
That’s up more than 1% in the past month.
The US dollar rallied and the Australian dollar fell under parity with the greenback after regaining it earlier in the session.
The reason was not only the lack of any movement on rates, but the Fed’s retention of its increasingly controversial $US600 billion of new spending or quantitative easing.
The purchases will “promote a stronger pace of economic recovery” and keep prices stable “over time,” the Federal Open Market Committee said in its statement.
But it again repeated previous remarks that unemployment is too high and said it would leave the Federal Funds Rate low (0%-0.25%) for an “extended period.”
"The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period."
"Information received since the Federal Open Market Committee met in November confirms that the economic recovery is continuing, though at a rate that has been insufficient to bring down unemployment, the Fed said.
"Household spending is increasing at a moderate pace, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit.
"Business spending on equipment and software is rising, though less rapidly than earlier in the year, while investment in nonresidential structures continues to be weak.
"Employers remain reluctant to add to payrolls.
"The housing sector continues to be depressed. Longer-term inflation expectations have remained stable, but measures of underlying inflation have continued to trend downward."
