19 JUNE 2013: MARKETS WAIT FOR BERNANKE

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Stocks led by General Electric grew higher on Wall Street yesterday, as markets eagerly wait for US Federal Reserve’s , FED, policy statement to be published later today. Both Dow Jones Industrial and the technology heavy Nasdaq added 0.91 and 0.87 % respectively on expectations that FED, for now, will maintain its aggressive bond buying program, which over the last half year has boosted stocks. Markets are gambling on continued monetary easing in spite of recent data pointing to an improvement in the US-economy.

FED Chairman Ben Bernanke recently stated that the bond buying would be wound down when the economy has proven stronger. FED has put a 6.5 % unemployment rate and an inflation rate below 2.5 % as benchmark targets. An improving US economy seems, at present, capable of growing without monetary easing, but FED has not yet decided on the final exit strategy. It is expected that a tapering of the bond buying will begin in September/October.

Japanese stocks followed the positive lead from New York, outperforming the rest of Asia. Nikkei rose 1.1 %, helped by a softer Yen. USD/JPY traded at 95.28 down from the 94.50 level seen over the last couple of days. The Asian Pacific MSCI-index eased 0.3 % led by a 1.3 % fall in mainland Chinese stocks. Hong Kong and South Koreas were also lower. The MSCI index has lost 8 % since May 22nd, when Bernanke indicated to Congress that a decision to wind down bond buying would come in the next few meetings.

The question for many investors is whether Bernanke will succeed in convincing markets that any tapering is conditional on incoming data opposed to the foregone conclusion: tapering is going to come regardless. The uncertainty has convinced most currency and equity investors to retreat to the sidelines. The Dollar has moved marginally over the last day. EUR/USD trades at 1.3390 after reaching close to a four-month peak at 1.3416 yesterday. Commodities, oil and gold are trading at steady levels.

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