Asian shares mostly weaker on Wall Street cues, Fed awaited

Asian shares were lower Wednesday taking a cue from Wall Street overnight and continued steady monetary policy from the Bank of Japan as expected.

Elsewhere in Asia, South Korea's KOSPI lost 0.2% and Australia's S&P/ASX 200 lost 0.7% as Sydney continued to be weighed by miners. The Hang Sengindex fell 0.09% in morning trade.The Nikkei 225 fell 0.3% after the yen strengthened against the dollar on solid export data.

Iron ore's spot price fell another 1% to a fresh 20-month low, putting pressure Rio Tinto Ltd (ASX:RIO) which fell 2.1% and BHP Billiton Ltd (ASX:BHP) lost 1.7%.

Overnight, calls from a key Federal Reserve official for rate hikes sooner rather than later coupled with disappointed earnings out of the U.S. retail sector sent Wall Street tumbling.

The Dow 30 fell 0.83%, the S&P 500 index fell 0.65%, while the NASDAQ Composite index fell 0.70%.

Charles Plosser, the head of the Federal Reserve's Bank of Philadelphia, said earlier that the Fed should consider winding down its monthly bond-purchasing program quicker than its current pace to ensure that inflationary pressures remain in comfort zones, while rate hikes should follow soon afterwards.

"My own view is that, as we continue to move closer to our 2 percent inflation goal and the labor market improves, we must be prepared to adjust policy appropriately. That may well require us to begin raising interest rates sooner rather than later," Plosser said in prepared remarks of a speech he delivered in Washington earlier, which sent stocks falling.

Less hawkish statements from Plosser's colleague in New York failed to seriously cushion losses.

William Dudley, head of the New York Fed, said rates will climb after the Fed winds down stimulus programs, though hikes will come gradually.

"My current thinking is that the pace of tightening will probably be relatively slow. This depends, however, in large part, not only on the economy’s performance, but also on how financial conditions respond to tightening," Dudley said in prepared remarks of a speech he delivered in New York earlier.

On Wednesday, Fed Chair Janet Yellen is to speak at an event in New York. Later in the day, the Fed is to publish the minutes of its latest meeting.

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Forex Signal for 21st May 2014

                                                                                


Japan (Tokyo)                               United Kingdon (London)                        USA (New York)

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EUR/USD

 Up Trend : 

 (1) BUY

Entry Point: 1.36970 

Take Profit: 1.37400

Stop Loss:   1.36500

 

GBP/USD

Up Trend:

(1) BUY

Entry Point: 1.68350 

Take Profit: 1.68650

Stop Loss:   1.67900

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Daily forex signals are sent ontime to only our subcribers.

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Gold gains as market digests Fed comments

Gold prices inched up on Tuesday after two prominent Federal Reserve officials addressed the timing of rate hikes, which sent equities falling on uncertainty, thus bolstering the yellow metal's appeal as a safe haven.

The June contract settled up 0.03% at $1,293.80 on Monday.On the Comex division of the New York Mercantile Exchange, Goldfutures for June delivery traded at 1,294.40 a troy ounce during U.S. trading, up 0.05%, up from a session low of $1,286.10 and off a high of $1,297.00.

Futures were likely to find support at $1,277.70 a troy ounce, the low from May 12, and resistance at $1,305.70, Monday's high.

Gold rose on safe-haven demand from investors avoiding equities as investors jumped to the sidelines to digest comments from U.S. monetary authorities.

Charles Plosser, the head of the Federal Reserve's Bank of Philadelphia, said earlier that the Fed should consider winding down its monthly bond-purchasing program quicker than its current pace to ensure than inflationary pressures remain in comfort zones, while rate hikes should follow soon afterwards.

"My own view is that, as we continue to move closer to our 2 percent inflation goal and the labor market improves, we must be prepared to adjust policy appropriately. That may well require us to begin raising interest rates sooner rather than later," Plosser said in prepared remarks of a speech he delivered in Washington earlier.

Separately, William Dudley, head of the New York Fed, said rates will raise after the Fed winds down stimulus programs though hikes will come gradually.

"My current thinking is that the pace of tightening will probably be relatively slow. This depends, however, in large part, not only on the economy’s performance, but also on how financial conditions respond to tightening," Dudley said in prepared remarks of a speech he delivered before the New York Association for Business Economics earlier.

"If the response of financial conditions to tightening is very mild—say similar to how the bond and equity markets have responded to the tapering of asset purchases since last December—this might encourage a somewhat faster pace. In contrast, if bond yields were to move sharply higher, as was the case last spring, then a more cautious approach might be warranted."

Gains were limited, as consensus exists that Fed stimulus tools that have supported gold for years are on their way out, with the timing of rate hikes serving as the main uncertainty.

Elsewhere, the World Gold Council reported earlier that demand in China, the world's biggest consumer, fell 18% in the first quarter.

Jewelry consumption jumped 10%, though demand for bars and coins fell 55% percent.

Meanwhile, silver for July delivery was up 0.20% at $19.392 a troy ounce, while copper futures for July delivery were down 0.74% at $3.144 a pound.

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Fed's Dudley: Rate hikes will take place gradually

The Federal Reserve will hike interest rates someday but don't expect monetary policy to tighten too quickly, William Dudley, the Fed's Bank of New York President, said on Tuesday.

Monetary authorities have said a considerable amount of time will pass after the quantitative easing program ends and rate hikes begin, though markets can expect a very gradual tightening.The Fed is currently purchasing $45 billion in Treasury and mortgage debt a month to spur recovery by suppressing long-term interest rates, a monetary policy tool known as quantitative easing.

Markets have long been concerned of the inflationary sides effects that stem from past and present quantitative easing programs and how the Fed can rein them in as the economy improves.

"My current thinking is that the pace of tightening will probably be relatively slow. This depends, however, in large part, not only on the economy’s performance, but also on how financial conditions respond to tightening," Dudley said in prepared remarks of a speech he delivered before the New York Association for Business Economics earlier.

"If the response of financial conditions to tightening is very mild—say similar to how the bond and equity markets have responded to the tapering of asset purchases since last December—this might encourage a somewhat faster pace. In contrast, if bond yields were to move sharply higher, as was the case last spring, then a more cautious approach might be warranted."

The Fed's current bond-buying program began in 2012 at $85 billion in monthly asset purchases, though a stronger economy has prompted the Fed to taper the program.

Past and present rounds of asset purchases have swelled the Fed's balance sheet to around $4 trillion today, though the Fed will shrink that figure as gently as possible.

"With an exceptionally large balance sheet there will be considerable attention on the methods that the FOMC will likely use in order to exert control over the level of short-term rates. I can’t tell you yet how we will do it, but I am fully confident that we have the necessary tools to control the level of short-term rates and the credit creation process," Dudley said, referring to the Federal Open Market Committee, the Fed's monetary policy body.

Dudley added that the Fed's 2% inflation goal is not a ceiling and added policy will remain flexible.

"My own view is that 2 percent is definitely not a ceiling. Once we reach 2 percent, I would expect that we would spend as much time slightly above 2 percent as below it, recognizing that we will hardly ever be exactly at 2 percent because of the inherent volatility in prices," Dudley said.

"If inflation were to drift above 2 percent, all else equal, then we would tend to resist such a rise. But, if inflation were slightly above 2 percent even as unemployment remained far above levels consistent with maximum employment, then the unemployment consideration would dominate because we would be further from the unemployment objective than we are from the inflation objective. This should not surprise anyone. This is what our 'balanced approach' implies."

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