The Toronto Stock Exchange failed to get a bounce today from the announcement by the U.S. Federal Reserve that it would inject stimulus into the economy.
Major markets dropped after the Fed’s Open Market Committee announced it would spend $600 billion U.S. by next June buying assets, but unlike other indexes, Canada’s benchmark S&P/TSX failed to regain that ground and closed in positive territory.
The Loonie’s initial response was to jump up, coming within a half-cent of parity, but then it pulled back once the Fed’s announcement sunk in with investors. The Canadian dollar finally closed at 99.32 cents U.S., a gain of 26 basis points.
No major upward movement on the markets and in commodity prices suggests that the markets had already priced in the $600 billion.
In regards to the Fed’s announcement about the new stimulus, now being called QE2, TD Economics senior economist James Marple cautions that at this point, quantitative easing can only do so much.
“Credit will continue to be constrained by household deleveraging and uncertainty in the housing market, and there is little reason to believe that an additional $600 billion in reserves will significantly alter this paradigm,” Marple wrote in a note. “At the very least, QE2 should succeed in holding down interest rates and give more time for the economic recovery to gain momentum.”