World stock markets were mostly higher yesterday and the dollar fell to a 14-month low against the euro as the Federal Reserve began a two-day policy meeting in which it is expected to maintain its easy monetary policy.
A report that showed US single-family home prices rose in November, building on a string of gains that point to a housing market that is on the mend, added to investor optimism on economic growth.
Financial markets reacted accordingly even as investors were reluctant to make big bets, given mixed US economic data, the run-up in stocks in recent weeks and risk in the form of a slew of economic reports for the rest of the week and the Fed meeting.
Financial markets were initially weaker on a report showing US consumer confidence dropped in January to its lowest in more than a year. But that same data kept alive expectations the Federal Reserve will maintain its ultra-easy monetary policy for the foreseeable future.
“There is a serious split between the attitudes of consumers and the attitudes of the markets,” said Joseph Trevisani, chief market strategist at WorldWideMarkets, in Woodcliff Lake, New Jersey, after the consumer confidence data. “This may make for a weaker dollar as it makes it less likely the Fed will contemplate an early removal of QE,” referring to the central bank’s debt-buying programme.
The euro extended gains versus the dollar, breaking above key resistance to hit a 14-month high. It last traded at $1.3483.
The Dow Jones industrial average was up 69.32 points, or 0.50 per cent, at 13,951.25. The Standard & Poor’s 500 Index was up 6.80 points, or 0.45 per cent, at 1,506.98. The Nasdaq Composite Index was down 1.84 points, or 0.06 per cent, at 3,152.46.
“A move like this in one month is extraordinary, and keeping the gains going will depend on concrete news like earnings and data that show the economy is getting better,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia. “We haven’t seen enough of that to make people jump in after the rally we’ve had.”
Recent gains in stocks have largely come on a strong start to the corporate earnings season, and that trend continued yesterday with positive results from both Ford Motor Co and Pfizer Inc.
European stocks scaled fresh two-year highs yesterday, boosted by miners, as optimism about economic recovery gained momentum following the encouraging US home price data and comments on growth in top metals consumer China.
The benchmark FTSEurofirst 300 index was up 0.4 per cent. The index is up 24 per cent from its June lows.
Gains across Asian markets, led by a big rally in Australian shares, helped to lift MSCI’s world equity index 0.6 per cent to a 20-month high.
Peter Sullivan, head of European Equity Strategy at HSBC in London, said the past nine weeks have seen steady equity inflows from retail investors after four years dominated by outflows.
He said these new equity flows were going primarily into emerging markets and Europe but did not yet represent a full switch from bonds to equities.