North American markets were lower 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 S&P/TSX composite index dipped 28.24 points to 12,805.87. The Canadian dollar fell 0.12 of a cent to 97.01 cents US.
It is widely expected that the Fed will announce that it will 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, resulting in more investors in the markets and fuelling market rallies across the globe.
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.
But not everyone agrees that the central bank may make any moves.
“Everyone is basically just marking time and nobody really wants to get in, jump in with both feet on anything because nobody really knows which way they’re going to go here,” said Colin Cieszynski, an analyst with CMC Markets Canada.
Cieszynski said the Fed has to carefully weigh the timing and the amount of stimulus it wants to pull back.
“They’ve been using tapering to support the economy so the risk is that recovery stalls and it doesn’t quite carry on as well as people was hoping it would,” he said.
“On the other hand, tapering is taking the foot off the gas so it happens as a sign of an improving economy.”
Most agree that what will be most important is the wording that accompanies the announcement, as investors listen to hear whether more hints will be dropped on the pace of future stimulus reductions.
Bernanke is set to make an announcement at 2:00 p.m. (ET).
Wall Street was mixed as the Dow Jones index dropped 30.22 points to 15,499.51, the Nasdaq was up 1.17 points to 3,746.87 and the S&P 500 climbed 1.61 points to 1,703.15.
Meanwhile, Bank of Canada Governor Stephen Poloz said in a speech Wednesday that the Canadian economy is approaching a tipping point amid improved confidence among businesses and signs of stronger foreign demand.
However, Poloz added that Canada should be able to support stronger growth without stoking inflation – the key factor on the central bank’s interest rate decisions.
The Bank of Canada has maintained its influential overnight interest rate at one per cent since September 2010, although it has indicated that the rate will go up at some time.
In economic news, the U.S. Commerce Department reported that builders started work in August on the highest number of single-family homes in the last six months and requested permits to build more. The figures suggest housing is a driver of economic growth despite higher mortgage rates.
On the corporate front, smartphone maker BlackBerry (TSX:BB) announced that a new phone will hit the 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, though specific dates haven’t been announced.
BlackBerry has been in the midst of major changes with its organization and has a committee considering strategic alternatives, which could include the sale of the company. Its shares rose 0.55 per cent, or six cents, to $10.94 on the Toronto Stock Exchange.
The TSX was mixed, as the energy sector lost 0.25 per cent as the October crude contract gained 47 cents to $105.89 (U.S.) a barrel. The gold sector was the leading decliner, down by 1.22 per cent, as December bullion fell $11.90 to $1,297.50 an ounce. The metals and mining sector was up slightly at 0.08 per cent, while December copper was ahead five cents to $3.27 a pound.