Market Commentary: People’s Bank of China may inject $81 billion in liquidity

US

Following a session that had initially focused on the Federal Reserve communication, stocks ended the day at relatively the same value. The Benchmark S&P 500 index increased just 0.1 percent. Stocks briefly rallied as the Federal Reserve announced its commitment to maintain interest rates near zero for an undisclosed period of time after the end of asset purchases in October. Federal Reserve Chair Janet Yellen said that the labor market has not recovered sufficiently and the inflation rate is still below target.

An interest rate increase is expected for 2015. Yellen also said that the Federal Reserve is in no hurry to start the reversal of the quantitive easing process.  The Federal Reserve’s balance sheet has increased to over $4.4 trillion. Reversal of these asset purchases are expected to take up to the end of this decade.

Asia

The People’s Bank of China may inject $81 billion in liquidity, however, this may still be insufficient to reverse China’s subdued growth. China is currently undergoing structural adjustments and Premier Li Keqiang has vowed that he will not be distracted by short-term fluctuations. China targets an economic expansion rate of 7.5 percent, however, several analysts foresee a rate closer to 7 percent going forward.

The injection is still unofficial and the Central Bank has refused to comment on the move. In the meantime China’s stock Market rose as concerns of a cash-crunch retreated.

Europe

European stock advances as the US Federal Reserve indicated that interest rates will remain stable for a prolonged period.

Bayer AG rose over 4 percent after saying that it plans to spin off its plastics unit. Bayer said that its plastics business will be listed as a separate company.

The European Central Bank will announce the result of it first targeted lending program today as part of its effort to avoid deflation in the euro area. The program is one of the measures that the European Central Bank has intended to boost its balance sheet.

Voters in Scotland appear to be undecided whether to seek independence from the UK. The poll may trigger a new era of self-determination in Europe. The vote follows two years in which the two sides of the debate argued over whether Scotland would be better off alone. Other regions are also watching the vote closely. Catalonia in particular is gathering support for a similar vote in November.

Gold

Gold retreated to the lowest level since January after indications that the US Federal Reserve may move interest rates next year. Indications of higher interest rates and a stronger dollar affect the price of gold negatively.

Oil

The West Texas Intermediate price of oil dropped for a second day as US stockpiles increases for the first time in weeks. The increase was a surprise following a production cut by OPEC and add further weight to arguments that a supply glut is forming.

This article was issued by Calamatta Cuschieri, visit www.cc.com.mt for more information.

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