Newspaper article The Canadian Press

TSX Up Slightly, Wall Street Falls amid Talk of Possible End to Fed Stimulus

Newspaper article The Canadian Press

TSX Up Slightly, Wall Street Falls amid Talk of Possible End to Fed Stimulus

Article excerpt

Markets mixed amid assurances on QE


TORONTO - North American markets were mixed Wednesday after U.S. Federal Reserve chairman Ben Bernanke said the central bank has considered ending its extraordinary stimulus program, but added that it is too soon to do it now.

Indexes in Toronto and the U.S. initially surged on news that the Fed had no immediate plans to turn the tap off on its $85-billion-a-month bond buyback program.

But by the end of the day, the S&P/TSX composite index was ahead just 10.07 points at 12,752.50. The Canadian dollar fell 0.98 of a cent to 96.41 cents US.

On Wall Street, the Dow Jones industrials index was down 80.41 points at 15,307.17. The S&P 500 dropped 13.81 points to 1,655.35 and the Nasdaq fell 38.82 points to 3,463.30.

The indexes had hit records as day earlier after two Fed presidents hinted that the U.S. central bank should be cautious with pulling back on quantitative easing.

On Wednesday, in testimony before the Congress, Bernanke said scaling back, or even stopping the $85-billion-a-month bond buyback program would be a bad idea because the U.S. job market remains too weak.

Yet when pressed, he said that it could happen as early as U.S. Labor Day.

"I don't think (Bernanke's) quite comfortable that ending QE (quantitative easing) is going to go on without a hitch, meaning that the economy will continue to move up and the markets will handle it well," said Ian Nakamoto, a portfolio manager at MacDougall, MacDougall and MacTier.

"I don't think he wants any abrupt change in the direction of unemployment... and I don't think he wants to put any impediment on the economy from moving up."

Meanwhile, minutes of the Fed's last monetary meeting from April 30-May 1 released following Bernanke's speech showed that some officials had considered slowing down the asset purchases as early as June.

But a number of other members voiced concerns that the program might need to be expanded if inflation continued to weaken.

Investors had been worried that the Fed would begin pulling back its monetary stimulus since recent data showed that outlooks for housing and jobs in the U.S. were rosier than expected. Quantitative easing has boosted liquidity in financial markets over the past few years.

The move has been replicated in some other countries, although not in Canada, and has resulted in stock indexes flying upwards despite a patchy recovery from recession in many parts of the world.

Over the past few weeks, a number of the world's main markets, such as the Dow Jones and Germany's DAX have recorded a string of all-time highs, while others such as Japan's Nikkei and Britain's FTSE 100 have hit multi-year highs.

Nakamoto called Bernanke a "student of history" who knows not to pull stimulus out too soon or run the risk of slowing the economic recovery altogether, like Japan in the 1990s. …

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