Sentiment Buoyed by FOMC QE3 Expansion

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December 13, 2012 8:00 PM EST

Financial markets strengthened after the FOMC meeting. As expected the Fed expand the size of asset purchases by US$45B as Operation Twist expires by the end of the month. Moreover, the central bank surprisingly agreed to replace the prior date-based guidance by economic thresholds after the asset purchase program ends. Wall Street mixed with the DJIA losing -0.02% while the S&P 500 index gaining +0.04%. Commodities rose with the front-month contract for WTI crude oil adding +1.14% while Brent crude jumping to a 5-day high of 110.50 before settling at 109.5, up +1.38%. Gold soared to 1725, the highest level in a week, before ending the day at 1717.9, up +0.49%.

The Fed announced at the FOMC meeting that it will expand QE3. It will purchase longer-term Treasury securities at a pace of US$45B per month after Operation Twist expires at the end of December. Purchases will be open-ended, additional to current purchases of mortgage-backed securities totaling US$40B per month. Moreover, the FOMC has replaced its time-based guidance on monetary stance with specific numbers for inflation and unemployment rates. The Fed would keep its easy money policies in place until unemployment rate reaches 6.5% or inflation is about to exceed +2.5%.

Concerning the economic outlook, the Fed noted that employment continued to expand at "a moderate pace" recently with the unemployment rate declining somewhat although "it remains elevated". Inflation was running "somewhat below" the Committee's longer-run objective excepting the impact of energy prices. The FOMC staff projection showed a small downward revision in near-term expectations for the unemployment rate.

The DOE/EIA reported that total crude oil and petroleum products stocks gained +5.92 mmb to 1098.47 mmb in the week ended December 7. Crude stockpile increased -2.36 mmb to 371.77 mmb as strong gains were recorded in PADD II and III last week. Cushing stock added +1.19 mmb to 46.82 mmb. Utilization rate was down -0.2% to 90.4%.

Gasoline inventory climbed +5.00 mmb to 217.12 mmb although demand added +1.60% % to 8.49M bpd. Production slipped -3.14% to 8.91M bpd while imports added +14.04% to 0.59M bpd. Distillate inventory added +2.99 mmb to 118.06 mmb although demand fell -1.24% to 3.50M bpd. Imports climbed +23.23% % to 0.19M bpd while production slipped -1.75% to 4.76M bpd during the week.

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Oil and Gold Reports contributed by Oil N' Gold

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