Global stocks jump as Fed soothes nerves while bond prices go up
World stock indexes jumped and the Nasdaq hit a record high yesterday while bonds rallied, a day after the Federal Reserve signalled an increasingly cautious approach to future US rate increases.
The dollar fell to its lowest in a week against a basket of major currencies as investors sold the greenback following the Fed’s reduction of longer-term interest rate expectations.
The Fed did signal it could hike rates by year-end as the labour market improved further, but cut the number of rate increases expected in 2017 and 2018. It also reduced its longer-run interest rate forecast to 2.9 per cent from three per cent.
That left investors feeling that any tightening would be glacial at best. Market pricing for a December move rose only a fraction to 59.3 per cent from 59.2 per cent, according to CME Group’s FedWatch tool.
“The Fed probably appeared less hawkish than what the markets had expected,” said Ryan Larson, head of equity trading at RBC Global Asset Management in Chicago. “I think the market continues to be focused on the Fed pushing a hike for later as a good thing rather than bad.”
The Dow Jones industrial average was up 118.58 points, or 0.65 per cent, to 18,412.28, the S&P 500 had gained 12.05 points, or 0.56 per cent, to 2,175.17 and the Nasdaq Composite had added 33.20 points, or 0.63 per cent, to 5,328.38.
MSCI’s all-country world stock index was up 1.3 per cent, while Europe’s Stoxx 600 was up 1.8 per cent.
In the bond market, benchmark US yields hit near two-week lows on revived bets the Fed would raise interest rates slowly due to weak economic growth and inflation stuck below its two per cent goal.
In early trading, benchmark 10-year Treasury notes rose 12/32 in price for a yield of 1.627 per cent, down four basis points from Wednesday.
The dollar index dropped 0.5 per cent to 95.189.
Oil climbed after a surprisingly large drop in US crude inventories emboldened investors ahead of next week’s meeting between Opec members and Russia to discuss supply.
Brent crude futures rose 1.9 per cent to $47.73 a barrel, while US oil futures jumped 2.5 per cent to $46.46.