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19 Jun. 2012   Category: General

With markets craving more liquidity to quell skittish sentiment, investors are looking now to the U.S. Federal Reserve to be the next major central bank to print money. Today begins the 2-day session of the Fed’s Open Market Committee, and though there is little scope for easing via interest rates given the already ultra low 0.25% benchmark rate, there are still a few weapons left in Chairman Ben Bernanke’s arsenal. A deteriorating labor market and a crisis escalation in the Eurozone are giving rise to growing speculation that the Fed will finally react.

Analysts polled expect that the central bank will announce some form of accommodation tomorrow. Goldman Sachs’ chief U.S.-based economist wrote in a recent report that they anticipate that the Fed will likely purchase mortgage-backed securities or U.S. Treasuries, and an extension of the soon-to-be-ended Operation Twist is also a possibility. The intent of Operation Twist was to drive long-term borrowing costs lower; it is accomplished by selling short-dated securities in order to buy longer-dated ones. As to whether or not the scheme was effective, there are differing opinions among analysts, and many believe that if the Fed’s announcement this time is for the continuation of Operation Twist, that does not preclude additional future easing.

So long as the Fed announces some form of easing tomorrow, equity markets will be spurred higher. Yesterday, Wall Street had a mixed day, with the DJ30 down and the SPX500 and NASDAQ closing higher. The tech sector closed higher and could see some residual gains when markets open in New York today on the back of unexpectedly robust quarterly earnings from Oracle which handily beat analysts’ forecast. Oracle reported yesterday that software sales rose 7% last quarter and revenue was posted at $11 billion, slightly higher than expectations. The company also announced its intent to buyback shares. On the news the share price surged by nearly 6% in after-hours trading, coming off a 2.1% drop in the price during the regular session.

Also likely to give a boost to the tech-heavy NASDAQ, Microsoft late yesterday introduced its rival to Apple’s iPad known as the Surface tablet which will run Windows 8 software and come with a keyboard and some other features of a laptop. Microsoft will manufacture the tablet itself rather than farm out production.

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