Yesterday the federal committee decided to justify this action by saying that the downside risks to growth were substantial in the prior month, where they faced the threat of a prolonged contraction which might extend further more to the second half of the current year.
The minutes also added that the Feds are concerned about low inflation levels which were pressured by the continuous fall in commodity prices reaching below $40 per barrel along with the severe economic slowdown which is obligating manufacturers to ease down the prices just to attract consumers.
Yet future crude prices inclined in the beginning of this week supported by the continuous heat from the Israeli attacks on Gaza strip which extended to twelve days in a row. Yesterday, crude prices reached a high of $50.44 per barrel, easing down slightly today to currently trade at $48.17 per barrel, giving OPEC some hope that prices will start to ascend to higher levels just to overcome some of the losses that were seen in the past months from low levels.
Those low inflationary levels and the economic downturn will obligate the Feds to use more tools just to revive back their economy; in the minutes the feds added that they will employ all available tools to promote resumption of sustainable economic growth and to preserve price stability.
Even after the gloomy outlook which was understood from the FOMC Minutes the US indices managed to incline slightly supported by the growing faith in the newly elected president Barack Obama, where he is preparing a colossal stimulus that might contribute in reviving back the falling growth. Till now no exact numbers are out yet markets expect to see a plan surpassing $700 billion which will be a combination of government spending along with tax reductions.
The Dow Jones industrial average gained 0.69% or 62.21 points reaching 9015.10 levels inclining only 2.72% since the beginning of the year; S&P 500 added 0.78% or 7.25 points reaching 934.70 levels; NASDAQ composite index advanced 1.50% or 24.35 points reaching 1652.38 levels.
The Asian indices got boosted by the confidence restored from the newly elected stimulus, the Japanese Nikkei Index added 1.74% or 158.40 points reaching 9239.24 levels along with the Topix Index adding 1.38% or 12.05 points reaching 888.25 levels. Yet Hong Kong's Hang Seng index lost 2.65% or 411.23 points reaching 15099.58 levels.
Also from Asia, the Indonesian Central Bank decided to slash their benchmark rates by 50 basis points for the second consecutive time reaching 8.75%, this attempt came to revive back the slowing growth and weak domestic demand, the bank added in a statement that the current inflationary levels gives more opportunities for more rate cuts in the upcoming period.
Moving to the European continent, we are waiting for the German Unemployment rates with expectations that it is still held at 7.5% in December, even when the economy growth crippled badly from the prolonged Credit Crisis which resulted in weakening the levels of demand on the German exported goods.
Bets are increasing; markets now foresee a rate cut in the upcoming week by the European Central Bank as their economy is still pressured by the weakening demand and the long lost confidence after they fell in a recession in the third quarter. Moreover markets now expect a cut from the Bank of England taking their rates down to 1.50% from the previous 2.00%.
But the Major fundamental for the week will remain to be the US Non-farm Payroll reading, expectations show that we will see layoffs for the 12th month in a row, where expectations heads toward a 533 thousand jobs were terminated in the past month, which take the overall Unemployment rates to 7.0% from the previous 6.7%.
The ADP Employment change might give us an idea on the levels of terminated jobs, where according to analysts a total of 493 thousand jobs got terminated in the prior month which would be worse than the previous termination of 250 thousand jobs which got revised to -472 thousand; yet this reading might not have that effect on markets.
The weakening outlook in economies across the globe and the support of the newly elected president gave some boost to the US dollar where it managed to appreciate against majors. The USD/JPY pair eased slightly in the early Asian session to currently trade at 93.53 levels but those levels is considered to be the highest in three weeks; also the US dollar pressured the Euro down to reach 1.35 levels after appreciating in the past three days to record a high of 1.4057.
The outlook for economies remains gloomy but the slight restored confidence might give financial markets some boost.