US markets jump as Fed refrains from QE tapering

19 Sep 2013 Evaluate

The US markets jumped on Wednesday, to record highs and the benchmark 10-year Treasury yield fell sharply after the Federal Reserve abstained from reducing its bond buys. Fed Chairman Ben Bernanke and his Federal Open Market Committee colleagues opted to maintain the central bank’s $85 billion in monthly bond purchases after climbing borrowing costs yielded indications that the economic recovery was slowing. By a 9-to-1 vote, the Fed chose to keep buying $85 billion a month in debt and stated that it would wait for more evidence of economic progress. The bank cited rising mortgage rates and reduced federal spending as headwinds that could slow the pace of improvement in the economy. Fed Chairman Ben Bernanke added that bank might still scale back its purchases before the end of the year, but it will depend on whether growth and the pace of hiring show greater strength. Bernanke also reiterated that the Fed has no plans to raise short-term interest rates any time soon. The vast majority of bank policymakers don’t expect rates to rise until 2015 at the earliest, and even then, they probably won’t top 2% until at least three years from now. Every member of the bank’s policy-making Federal Open Market Committee supported the decision except for Esther George, president of the Kansas City Fed.

On the economy front, construction of new US homes nudged up in August, but there was a nice increase for single-family homes. The US Department of Commerce stated that overall construction on new homes, which includes single-family residences and buildings with multiple units, rose 0.9% in August to a seasonally adjusted annual rate of 891,000. The overall result disappointed the street who had expected an August starts rate of 921,000, compared with an originally estimated July starts rate of 896,000.

The Dow Jones Industrial Average added 147.21 points or 0.95 percent to 15,676.90, the S&P 500 was up 20.76 points or 1.22 percent to 1,725.52, while the Nasdaq gained 37.94 points or 1.01 percent to 3,783.64.

Indian ADRs closed mostly in green on Wednesday; ICICI Bank was up 2.77%, HDFC Bank was up 2.21%, Dr. Reddy’s Lab was up by 1.42% and Infosys was up 0.83%. On the other hand, Sterlite Industries was down 6.22%.

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