The Federal Reserve has signalled it is ready to start unwinding its crisis-era stimulus programme as soon as its next meeting, suggesting that the central bank remains confident in the US outlook even as it acknowledges weak inflation readings.
The Fed kept rates unchanged at 1 per cent to 1.25 per cent at the meeting — as expected by financial markets. But in a sign of resolve on its policy committee, the Fed said in a statement that it was ready to start paring back the size of its balance sheet “relatively soon” as long as the economy stays on track.
Fed chair Janet Yellen has spent the year preparing the ground for the landmark moment when the Fed puts its quantitative easing programme into reverse. The Fed scooped up trillions of dollars of Treasuries and mortgage-backed securities during the crisis and has been reinvesting the proceeds of securities as they mature, maintaining its balance sheet at about $4.5tn.
With financial markets rocketing to new highs and unemployment hovering at just 4.4 per cent, the central bank is set upon gradually withdrawing that stimulus in a predictable manner that it hopes will avoid roiling the markets.
Overnight on Wall Street, the euro hit a fresh two-and-a-half-year high against the dollar above $1.17 and Treasury prices rose after the Federal Reserve signalled it was ready to start reducing its balance sheet “relatively soon”. Crude oil and copper also extended recent gains.
In Asia Pacific equities, futures tip Sydney’s S&P/ASX 200 index to open flat, while Tokyo’s Topix is set to shed 0.1 per cent and Hong Kong’s Hang Seng is expected to gain 0.1 per cent when trading begins.
Corporate earnings reports out today include Canon, NTT Docomo, Nissan, Daiwa Securities, Fancl, Fujitsu, OCBC, Hang Lung Group and Hang Lung Properties, Sumitomo Mitsui Trust and Seiko Epson.
The economic calendar for Thursday is relatively light (all times Hong Kong):
- 07.00: South Korea Q2 GDP (preliminary)
- 09.00: China Swift global renminbi payments
- 09.30: China industrial profits
- 16.30: Hong Kong imports, exports and trade balance
- Macau’s unemployment rate is also due out today.