The United States market has so far this month defied
history and the abundance of event risks to post a 3.4% gain.
Craigs Investment Partners broker Chris Timms said the
relaxed mood was partly because of the decreasing likelihood
of a US strike against Syria, expectations that the Federal
Reserve's tapering would be smaller than previously thought
and a weak patch in August that set the scene for a rebound
''Risks remain until we hear exactly what the Fed has in
The Fed would hold its post-decision press conference at
6.30am on Thursday (NZ time), not long before markets opened
in this part of the world, he said.
The Fed was now buying $US85 billion ($NZ103.5 billion) each
month. Markets expected that to be ''tapered'' by $US10
billion-$US15 billion a month, the bulk of the reduction
likely to come from the treasury bond side of the market.
If the Fed chose to taper by a larger degree, that would
surprise the market, as would a greater slant towards
mortgage-backed securities rather than treasuries, Mr Timms
''Given the Fed will still be printing about $US70 billion a
month, this is very much the Fed taking its foot slightly off
the gas, rather than applying the brakes.
"However, it nonetheless represents a big turning point and
sends a clear message it is moving towards a normalisation
policy of interest rates.''
In addition to the amount of tapering, the market would also
look at the Fed's updated economic forecasts and forward rate
guidance for 2016, which it would forecast for the first
time, he said.
In New Zealand, the June GDP - or gross domestic product,
which is a measure of output produced in an economy during a
period - will be released on Thursday by Statistics New
ASB chief economist Nick Tuffley expects June economic
activity to have contracted 0.2% over the quarter.
The fall in activity followed subdued growth in the previous
quarter, as the effects of the summer drought weighed on the
New Zealand economy over the first half of the year.
There was a sharp reduction in milk production as
increasingly dry weather led farmers to bring forward
livestock slaughter and reduce milk production, he said.
There had also been a fall in livestock slaughter in recent
''We expect these factors will be reflected in a drop in
dairy production and primary manufacturing activity in the
Partly offsetting the short-term effects of the drought were
encouraging signs of strength in the household sector. In
particular, retail sales grew strongly in the June quarter,
building on the strong gains in the previous six months, Mr
Stronger housing market activity had underpinned the strength
in retail spending as households bought furniture and
electronics to furnish their new homes.
Added to that were the wealth effects of higher house prices,
which had supported an improvement in household confidence,
''Our forecast of a 0.2% fall in GDP is weaker than what the
Reserve Bank expects, despite the central bank indicating it
had revised down its September MPS [monetary policy
statement] forecast of an increase of 0.4% in GDP, in light
of the weaker than expected second quarter data released in
the past week.''
A result below the Reserve Bank's expectations was unlikely
to be of much concern, given most of the weakness related to
the effects of the drought, Mr Tuffley said.
In the September monetary policy statement, Reserve Bank
governor Graeme Wheeler again highlighted the recovery in
consumption and rebuilding taking place and that it was
expected to continue supporting economic growth.
The ASB expected the Reserve Bank to hold the official cash
rate at 2.5% until March next year, gradually lifting it to
4% by late 2015.