Markets focused on Fed as investors expect to see small reduction in stimulus

TORONTO – North American markets are likely to be subdued Wednesday ahead of a much-anticipated announcement this afternoon from the U.S. Federal Reserve at the end of its two-day policy meeting.

The Canadian dollar fell 0.11 of a cent to 97.02 cents US.

The Fed is widely expected to announce that it’ll begin to reduce its massive $85-billion-a month bond-buying program, which was launched after the 2008 financial crisis to boost the flailing U.S. economy.

The plan was put in place to keep borrowing rates low. The low bond yields and flood of money led investors to plow into stock markets, fuelling rallies across the globe.

But since May, Fed chairman Ben Bernanke has hinted that the central bank will begin to scale back its stimulus once it has enough data to show that the economy is recovering. The markets are expecting the Fed to announce a $10 billion reduction in monthly bond purchases.

Yet what will be most important is the wording that accompanies the announcement, as investors keep an eye on whether more hints will be given on the pace of future stimulus reductions.

Bernanke is set to make an announcement at 2:30 p.m. ET.

Bank of Canada Governor Stephen Poloz is set to give a morning speech in Vancouver, followed by an afternoon press briefing before the Fed’s announcement.

U.S. futures were slightly higher as the Dow Jones industrial futures jumped ahead by seven points to 15,472, the Nasdaq futures was up 8.5 points to 3,192.50 and the S&P 500 futures was up 1.4 points to 1,699.70.

The latest U.S. housing starts figures were also set for release, but investor attention will be mostly on the Fed speech.

Meanwhile, smartphone maker BlackBerry (TSX:BB) announced that a new smartphone will be hitting markets in the coming weeks. The BlackBerry Z30 comes with a five-inch display, which means it’s about the same size as its competitor, the Samsung Galaxy S4. The company says the phone has a larger battery that will last for up to 25 hours.

The Waterloo, Ont., company says the new phone will be available at a number of Canadian carriers in the coming weeks, though specific dates haven’t been announced.

BlackBerry has been in the midst of major changes with its organization and recently formed a special committee to consider strategic alternatives, which could include its sale.

Commodity markets were mixed. The October crude contract gained 37 cents to US$105.79 a barrel, December bullion fell $9.10 to US$1,300.30 an ounce, while December copper was ahead three cents to US$3.25 a pound.

Paul Dales of Capital Economics said in an email commentary that he also expects the Fed to emphasize that “interest rates will remain low for a long time, perhaps via the publication of its interest rate forecasts for 2016 for the first time.”

Britain’s FTSE 100 rose 0.2 per cent to 6,580.02. Germany’s DAX advanced 0.3 per cent to 8,618.78. France’s CAC-40 gained 0.2 per cent to 4,154.99.

In Asia, Japan’s Nikkei 225 rose 1.4 per cent to close at 14,505.36. Australia’s S&P/ASX 200 lost 0.3 per cent to 5,238.10. South Korean markets were closed for a public holiday. Benchmarks in mainland China, India, New Zealand and Singapore rose while the Philippines and Indonesia fell.

Hong Kong’s Hang Seng, which gained more than 1,000 points so far this September by Tuesday’s close, fell 0.3 per cent to 23,117.45 as investors booked profits.