Risk aversion remains the theme in the markets after Fed announced to taper another USD 10b in its asset purchase program. The Dow dropped -1.19%, or -189.77 pts to close at 15738.79, extending recent decline. S&P 500 also closed at a new low of 1744.2, down -1.02%. It should also be noted that treasury yields also stayed weak with 30-year yields losing 0.05% at 3.622% while 10-year yields lost -0.071% to close at 2.675%. Both extended recent declines and closed at a new low. Risk aversion carried through into the Asian session with weak Chinese manufacturing data. But loss is so far limited as some Asian indices recover from intraday lows, and this helps support yen crosses.
The Fed's move in January was widely anticipated. It decided to reduce monthly asset purchases by a further US$10B to US $65B, by reducing treasury purchases to US$ 35B/month and MBS purchases to US$ 30B/month. The recent growth assessment was also upgraded. However, the policy statement was largely unchanged. The decision was made with unanimous support, the first time since June 2011. More in Fed Tapers Further...
With 35% chance of rate hike (+25 bps) priced in, the market was initially disappointed by the RBNZ's decision to leave the OCR unchanged at 2.5% in January. The accompanying statement was, however, upbeat and signaled that a rate hike would be coming soon. It is likely that the central bank would increase the policy rate at the March meeting. On the global economic environment, the central bank noted that "improvements in the major economies have required exceptional monetary accommodation and there remains uncertainty about the timing of withdrawal of this stimulus and its effects, especially on emerging market economies". More in RBNZ Keeps Powder Dry, Rate Hike Likely in March.
On the data front, the HSBC China manufacturing PMI dropped to 49.5 in January, lowest figure in six months and even worse than the flash estimate of 49.6. New Zealand building permits rose 7.6% mom in December. Australia import price dropped -0.6% qoq in Q4. Japan retail sales rose 2.6% yoy in December. Swiss KOF, German unemployment, CPI, UK mortgage approvals, Eurozone confidence indicators will be released in European session. The major focus today will be on US Q4 GDP first reading, which is expected to show 3.6% annualized growth. US will also release jobless claims and pending home sales.