Riskier assets started the day on the defensive as investors awaited the interest rate decision by the US Federal Reserve. Markets were surprised at the dovish statement from the FOMC that stated they intend on keeping interest rates near zero until late 2014. This in effect is an easing of policy, similar to the previous statement that targeted a change in rates no early than mid-2013.
The Fed did not change its economic assessment and instead kept with the December wording that the economy was expanding moderately. Inflation was said to be subdued rather than ” has moderated”. One item that should be noted was that the Fed calls its policy “highly accommodative”.
In European economic news, the German January Ifo business sentiment jumped to 108.3 from 107.3 in the previous month and is the highest since August of last year. It was also better than expectations (108.3 vs. 107.6) and mainly driven by an improvement in the forward-looking component, which rose for the fourth consecutive month, and now stands 4 points above its trough in October. Above all, this print coupled with the surprisingly good PMI readings Tuesday suggests that German economic activity will start to stabilize in early Q1 and may begin to gradually improve from Q2.
In the UK, the advanced reading of Q4 GDP came in below expectations at -0.2% q/q versus -0.1% q/q. The contraction is GDP was driven in part by weakness in production industries, which declined by 1.2%. Moreover, the service sector was essentially flat, its worst quarter in a year.
US equity markets partially drive by the Fed and partially driven by superior earnings from Apple, boosted the Nasdaq 100 to a break out zone. Binary options call buyers should look for opportunities.
