The market is down 17 points.

The Dow Jones was down 114 at 16,222 — The market traded in a cautious manner before the FOMC minutes were released, fell initially after the announcement and then further following the press conference from Janet Yellen. The market traded in a 240 point range. Despite the high range, volume was reasonably light

FOMC – The Fed cut asset purchases by US$10 million to $US55 million as expected and also dropped the unemployment rate as its threshold for measuring the strength of the economy, emphasising that it would rely on other factors in deciding when to boost interest rates.

But while the comments were dovish, the market reaction was negative due to concerns about the pace of future rate increases. In the statement, only one (of 16) believes it will be appropriate to raise rates this year, 13 expect a first rate hike next year, and two others see the first rate hike coming in 2016. The average (median) Fed policymaker believes overnight rates should be raised to 1% by the end of 2015 year and 2.25% by the end of 2016.

The concern was exaggerated by Janet Yellen’s response to a press conference question about what the Fed means by “considerable time” for keeping the current target range for the federal funds rate after the asset purchase program ends. She answered “probably six months.”

The Fed also reduced its growth forecasts to 2.8-3.0% in 2014 and 3.0-3.2% in 2015, which is a 0.2% cut to the top of the range in both periods. The forecasts for unemployment were improved – they now expect 6.1-6.3% this year (previously 6.3-6.6%) and 5.6-5.9% in 2015 (previously 5.8-6.1%). The outlook for inflation was largely unchanged – with a high of 1.6% this year and 2.0% next.

US treasuries were weaker — The benchmark 10 year bond yield was up 10 basis points to 2.77%.

Base metals were stronger — nickel was up 0.84%, continuing its recent strength. Copper rose 1.08% and lead was 0.45% higher.

Gold fell US$28.60 to US$1330.40 an ounce.

US economic data — the U.S. current account deficit narrowed to $81.1 billion, a 14-year low.

The Australian dollar was weaker and is currently trading at US90.38c.

Ukraine — In the UK budget speech, Osborne said any escalation in the crisis could hit wider European growth. The U.S. warned Moscow it was on a path to isolation after Russian troops entered Ukraine’s naval headquarters in Sevastopol and raised their flag. At this stage it’s all talk and Ukraine has taken a back seat to FOMC discussion but analysts say further sanctions are possible.

UK budget boosts economic forecasts — growth of 2.7% now expected in 2014 (from 2.4 percent) and 2.3% in 2015 (from 2.2%). The budget also scrapped the requirement for pensioners to buy an annuity and imposed a 25% tax on certain betting machines.

UK employment — unemployment rate was steady at 2.7% but the number employed was the highest since records began at 30.19 million.


  • Myer (MYR) — First half net profit of $80.8 million. Down 8.1% but was better than a consensus forecast of $74.2 million. Interim dividend of 9c. Total sales up 0.3% to $1.737 billion. On comparable store sales basis sales were up 1.2%. Myer CEO Bernie Brookes said good progress had once again been made executing the company’s well-established five-point plan which continues to provide clear direction for the business. He was reappointed to the role as CEO on an open term contract.
  • David Jones update: Myer says the merger “represents a unique opportunity to create significant value for both companies'” respective shareholders and are willing to engage collaboratively on this unique opportunity. Mr Brookes now expects gross margins in the second half to be flat compared to previous guidance of around 40 basis points. Cash costs are expected to rise 4%-5%.
  • David Jones (DJS) — Interim results yesterday saw the stock down 1c to 332c. The results were OK but with Paul Zahra fending off any questions about the merger approach from Myer as hypothetical and talking about DJS “turning the corner” (the phrase used by most headlines on the results this morning) the feeling is that a merger with Myer is less likely. Not good for DJS but OK for MYR. MYR rose 1c to 266c yesterday.
  • Brambles (BXB) — Says it had recently approached Singapore’s Goodpack packaging business but discussions did not progress.
  • Wotif (WTF) jumped a whopping 22.95% to 300c yesterday and is up from an all-time low of 235c in two days.

Peter Fray

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