After a three week high, Canadian stocks fell. This is due to the slippage of financial shares and gold producers after the US Federal Reserve ended its asset-purchase program. Financial institutions that experienced losses due to this phenomenon include the Royal Bank of Canada, Barrick Gold Corp., and Teck Resources Ltd.; among others. In fact, 8 of the 10 industries in the benchmark Canadian equity gauge declined due to this. However, the Fed reiterated that its pledge to keep interest rates low for a "considerable time" while it ended its quantitative easing program. This program added $1.66 trillion to its balance sheet. Interestingly, the Fed predicts that inflation rates will be kept low due to lower energy prices in the short run. While this isn't necessarily a good thing, the concern that interest rates will drop below 2% have seemingly diminished. Financial institutions agree that the recent drop in prices does not indicate an imbalance between supply and demand in this market.
Wednesday, October 29, 2014
Canada Stocks Fall as Gold Producers Tumble After Fed Decision
http://washpost.bloomberg.com/Story?docId=1376-NE7LMV6TTDSF01-5TIR916L4K42849A9FJKH3NPTP
After a three week high, Canadian stocks fell. This is due to the slippage of financial shares and gold producers after the US Federal Reserve ended its asset-purchase program. Financial institutions that experienced losses due to this phenomenon include the Royal Bank of Canada, Barrick Gold Corp., and Teck Resources Ltd.; among others. In fact, 8 of the 10 industries in the benchmark Canadian equity gauge declined due to this. However, the Fed reiterated that its pledge to keep interest rates low for a "considerable time" while it ended its quantitative easing program. This program added $1.66 trillion to its balance sheet. Interestingly, the Fed predicts that inflation rates will be kept low due to lower energy prices in the short run. While this isn't necessarily a good thing, the concern that interest rates will drop below 2% have seemingly diminished. Financial institutions agree that the recent drop in prices does not indicate an imbalance between supply and demand in this market.
After a three week high, Canadian stocks fell. This is due to the slippage of financial shares and gold producers after the US Federal Reserve ended its asset-purchase program. Financial institutions that experienced losses due to this phenomenon include the Royal Bank of Canada, Barrick Gold Corp., and Teck Resources Ltd.; among others. In fact, 8 of the 10 industries in the benchmark Canadian equity gauge declined due to this. However, the Fed reiterated that its pledge to keep interest rates low for a "considerable time" while it ended its quantitative easing program. This program added $1.66 trillion to its balance sheet. Interestingly, the Fed predicts that inflation rates will be kept low due to lower energy prices in the short run. While this isn't necessarily a good thing, the concern that interest rates will drop below 2% have seemingly diminished. Financial institutions agree that the recent drop in prices does not indicate an imbalance between supply and demand in this market.
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Opponents of increasing the interest rate advocate that higher interest rates make it more expensive for companies to borrow funds. Unable to expand as easily and quickly, the economy stalls and stocks suffer. To some extent, their argument is true: on occasion, rising interest rates lead to falling stock prices. However, at other times, the opposite occurs and increasing interest rates lead to rising stocks. That which differentiates these two scenarios is the point where interest rates start: when rates begin low, stocks are likely to rise; when rates begin high, stocks are likely to fall.
ReplyDeleteThis has been a direct result of Fed ending the QE program. The Fed has assured the public that the interest rates will be kept low for the foreseeable future. The sharp drop is based off of projections with QE attached. Now that QE has ended, new projections for the market will need to be established but the market will rebound and reach a level of normalcy.
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