Financial Shares Climb as Investors Bet on US Rate Rise

Fed balance sheet BI
Fed balance sheet BIMore
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23 September, 2017

Miners also fell after Chinese steel futures hit their lowest level in nearly a month. USA stock indexes are near their recent record highs. Bank of America rose 1.4 percent. JPMorgan has a 95.32 potential buy point.

MARKETS OVERSEAS: Global shares were mixed.

The Dow Jones Industrial Average (NYSEARCA:DIA) traded within a narrow range before closing at 22,412.59 for its seventh consecutive record close. On Thursday, the United States unit was given an extra lift after the Bank of Japan decided against altering its ultra-loose monetary policy, which analysts said could see it break above 113 yen soon. In other words, we'll find out whether Fed policymakers have been transformed into doves or are sticking to their guns.

The index has slid more than 11 percent this year, as expectations for pro-growth, pro-inflation policies from U.S. President Donald Trump have diminished, complicating the Fed's monetary policy path.

Inflation has remained stubbornly below the Fed's 2-percent target rate, but a recent data showed uptick in domestic consumer prices, which raised the chances of a December rate hike by more than 50 percent. ObamaCare repeal has a real shot at becoming law by the end of September.

While mostly brushed off by investors, the comments revived the stand-off between the U.S. and North Korea earlier in the month after Pyongyang tested a nuclear bomb and ratcheted up tensions in the region. One big source of comfort for the markets is the lack of inflation.

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The timing of President Trump's deal with top congressional Democrats this month to lift the limit on government borrowing until December 8 means that the Treasury Department has begun unwinding all of the extraordinary measures it took to keep from violating the debt limit that was hit in March.

The balance sheet shrinkage will start at a slow pace, with an initial monthly reduction amount of $6 billion for treasuries and $4 billion for Agency Mortgage Backed Securities (MBS). Officials also said they plan to start unwinding the USA central bank's $4.5 trillion balance sheet next month by reducing its bond holdings, which will gradually increase long-term borrowing rates.

In October, the Fed will begin reducing its $4.5trn portfolio in bonds by stopping reinvesting the proceeds of maturing debt accumulated through the various QE programmes.

All the easy money sloshing around on financial markets burnished bullion's reputation as a hedge against inflation and as a storer of wealth amid the debasement of paper currencies sending gold to an all-time nominal high above $1,900 an ounce by August 2011.

In its annual report this year, the Bank for International Settlements (BIS) said: "Empirical evidence confirms the widely held view that large-scale asset purchases have significantly influenced yields and financial conditions". Trump's administration said it would punish foreign companies dealing with the North, including by expanding the Treasury Department's ability to ban anyone from interacting with the USA financial system.


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