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Morning Market Report

The Aussie dollar looks set to fall further in the event of US tapering.

The market is down four points.The Dow Jones closed down nine at 15,875. The market traded around yesterday’s closing level — lacking direction while waiting for a decision from the FOMC in a 80 point range.

Economic data was limited, with a flat CPI indicating there is little inflationary pressure, although the core number was higher than expected, to prevent the continuation of easy monetary policy. We expect a decision from the Fed tomorrow morning our time.

The S&P fell six points to 1,781.

Oil was down 0.17% at US$97.31.

Gold fell $14.00 to US$1,230.40 per ounce.

The US$ was weaker against most major currencies. The Aussie dollar was also weaker and is currently trading at US 89.00c.

VIX volatility index rose 1.12% to 16.21.

US Treasury markets were stronger —  the yield on the 10 year bond fell four basis points to 2.841% in the lead up to the Fed decision tomorrow.

European shares were weaker  — the UK FTSE fell 0.55% and the German DAX was down 0.86% despite strong data on sentiment. The French CAC fell 1.24%.

European bonds were mixed  —  the yield on the Euro 10 year bond fell one basis point at 1.827% but Spanish and Portuguese yields were higher.

Base metal prices were stronger  —  led by zinc up 0.53%, aluminium up 0.26% and nickel up 0.2%. Copper was the exception, falling 0.34%.

Iron ore was down US$0.60 at US$134.40 a tonne.

STORIES

  • The Aussie dollar has fallen below US89c for the first time in four months as the market prepares for a possible announcement by the US Federal Reserve to taper their bond buying program. This morning the dollar was trading at US88.82c but has since moved back up to US89.00c. If the US tapers tomorrow the Aussie dollar is set to drop, with economists saying it could trade between US 87.50c and US90.00c.
  • Wotif.com (WTF) —  Is down 30% after issuing a profit downgrade. Profit for the half is expected to be in the range of $21.9-22.6 million, compared to $27.5 million in the prior half-year. The outlook for the second half of the 2014 financial year remains volatile with retail conditions in key Australian and New Zealand retail market continuing to be soft. Given this volatility, WTF has not provided guidance for the full 2014 fiscal year at this time.
  • Today was the first day of the FOMC meeting and trading was quiet ahead of the decision (Bernanke has a press conference at 2.30pm New York time which is 6.30am for us). Very few were brave enough to make a stand. The general view is that there is perhaps enough evidence to justify an early tapering, with recent improvements in the economy and the labour market, but that the Fed will probably wait until there a verification of its sustainability.
  • UGL  — Down 5.3% after secures Chevron maintenance contract.
  • Pact Group (PGH) — Up 2.82% after listing on the ASX yesterday.
  • REA Group (REA 3601c) —  Down another 4.45% after yesterday’s 6.88% fall on the back of the departure of their CEO. Yesterday news of CEO Greg Ellis’ departure cause a negative reaction to the share price. But the outgoing CEO dismissed claims that his surprise exit had anything to do with the recent departure of CFO Jenny Macdonald. Speculation of board tensions did the rounds yesterday but many are labelling his departure as a mere coincidence. He told The Australian, “It is unfortunate that there are two senior positions that have left the company in quick succession, but they are unrelated to each other.”
  • Yesterday’s RBA minutes didn’t rule out another rate cut but the RBA would rather see the dollar drift lower to help prop up the economy. The RBA said, “The Board’s judgment remained that, given the substantial degree of policy stimulus that had been imparted, it was prudent to hold the cash rate steady while continuing to gauge the effects of earlier reductions, but not to close off the possibility of reducing it further.”
  • Yesterday Joe Hockey abandoned the Government’s commitment to achieve a budget surplus by 2016-17 as promised by Labor. He argued it would never have been achieved because spending was out of control. He presented a subdued economic outlook and projected $123 billion worth of deficits over the next four years. He revealed a revenue decline of $16.8 billion for the year contributing to a budget deficit in June 2014 expected to reach $47 billion. Treasury forecasts showed increasing debt which, if left on its current path, would see gross debt reach $667 billion by 2023-24 or 26% of GDP.

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