My reason why STI choose to go down - Fear

Fed expected to downgrade US growth outlook


Posted: 10 August 2010 0620 hrs

WASHINGTON: The Federal Reserve's interest rate-setting panel will meet on Tuesday, under pressure to bolster a weak economic recovery that many fear is grinding to a halt.

The 10-member body is expected to downgrade its assessment of the health of the world's largest economy, as it keeps interest rates at historic lows.

The Fed's policies have come under the microscope in recent months, as investors asked whether the central bank has been overly rosy in its previous assessments, calling its credibility into question.

In June, the Fed said the economic recovery was "proceeding" despite headwinds and would remain "moderate for a time."

That language - which is eagerly watched by investors - may now be revised to reflect a dramatic slowdown in the pace of the recovery.

"It will be hard to take the Fed seriously if a more forthright acceptance of the array of softer data is not forthcoming," said Ian Shepherdson of High Frequency Economics.

The scale of the slowdown was laid bare last week, when the Labour Department reported 131,000 jobs were lost in July, far more than expected.

On Monday, researchers at the San Francisco regional Fed ditched the ordinarily couched language of central bankers to warn a double dip recession was possible.

"A recessionary relapse is a significant possibility sometime in the next two years," researchers Travis Berge and Oscar Jorda wrote, adding that "the policies that are adopted today could play a decisive role in shaping the pace of growth."

Fed watchers will be looking for any hint of a change in those polices and specifically a return to stimulus spending that marked the depths of the recession.

The bank battled the financial crisis by spending more than one trillion dollars, buying up Treasury bonds, mortgage-backed securities and other financial instruments to lubricate markets.
The Federal Reserve may take a tiny step in that direction by reinvesting cash from maturing bonds rather shrinking its portfolio.

Analysts say that could mean spending anywhere between 100-300 billion dollars over the next year.

"The FOMC faces a tough meeting tomorrow with the market pricing in either a significant change to the statement or, indeed, renewed moves to stimulate the economy, such as re-investing maturing coupons on bond holdings," said UBS analysts in a note to clients.

But some market-watchers doubt the Fed will take such drastic action without a more explicit threat to the recovery.

"Other than implicitly marking down its near term growth outlook, we expect the tone of the FOMC to not be substantially different than June," said Joseph LaVorgna, chief US economist at Deutsche Bank.

"We do not expect the Fed to symbolically announce that it plans to reinvest maturing mortgage backed securities back into the market.

LaVorgna indicated even a modest shift in policy - such as altering the interest paid on banks' excess reserves held at the Fed - could upset fragile markets.

"We do not expect the Fed to cut the interest on reserves either, as that would wreak havoc."

- AFP/de

Asian stocks open mixed

TOKYO

Japanese shares opened higher on Tuesday, with the headline Nikkei index rising 48.21 points, or 0.50 per cent, to 9,620.70 in the first minutes of trading.

HONG KONG

Hong Kong shares lost 0.28 per cent in early trade on Tuesday, with the benchmark Hang Seng Index down 61 points at 21,740.59.

KUALA LUMPUR

At 9.30 a.m. on Tuesday, there were 137 gainers, 112 losers and 141 counters traded unchanged on the Bursa Malaysia.

The FBM-KLCI was at 1,361.70 up 1.04 points, the FBMACE was at 3,817.26 up 0.56 of a point, and the FBMEmas was at 9,227.75 up 3.92 points.

Turnover was at 71.270 million shares valued at RM69.599 million. -- AFP, BERNAMA

Kestrel Capital Partners

I couldn't help but seeing STI not moving much except for Former remisier King Peter Lim's Informatics.

Market volume is high but the value is not. Market has turned to small counters. Not suitable for short term trades unless going for big volume.