Stock markets rally and pound hits five-year high after Federal …
The Frankfurt stock exchange today. Photograph: STRINGER/GERMANY/REUTERS
Last night’s dovish tone from the US central bank has lifted European stock markets, pushed the pound higher, and sent the VIX volatility index down to its lowest level in around eight years.
The Fed sparked the rally last night, by giving no clear indication of when interest rates might rise, and by refusing to panic about the recent pick-up in inflation.
As Kit Juckes of SocGen put it:
In the end, Janet Yellen’s dovish bias ruled. The Fed is more worried about anchoring long-term rate expectations than preparing the market for rate hikes.
Other economists pointed out that the Fed is not willing to risk knocking the US economy back by raising rates too soon:
European stock markets are close to their highest level in six years. Here’s a snapshot, after Japan’s Nikkei hit a four-and-a-half month high:
FTSE 100: up 0.7% at 6827, +48 points
German Dax: up 0.85% at 10015, +84 points
French CAC: up 1% at 4575, + 45 points
Italian FTSE MIB: up 1% at 22251, +222 points
Spanish IBEX: up 1.1% at 11234, +122 pointsGlobal investors were also cheered by the Fed’s declaration that “[US] economic activity has rebounded in recent months”.
It’s the financial markets favourite cocktail — the promise of more loose monetary policy today, and the prospect of growth tomorrow.
David Thebault, head of quantitative sales trading at Global Equities, commented:
“The overall tone was pretty dovish and the forecast for economic growth
seems lower than expected, which is good for equities. Central banks
continue to drive markets big time.”The Euro STOXX 50 Volatility index, Europe’s main “fear gauge”, tumbled 9 percent to 12.6 – a level not seen since 2006.
The pound is trading steadily at its highest level since August 2009, at $1.7035 to the US dollar – prompting the CBI to warn it could hurt exports.
And the dollar remains lower today against most currencies — as traders adjust to the fact that Janet Yellen did not, as some predicted, give hints about when interest rates might rise.
Ioan Smith, director at KCG, said (via Reuters)
“There was a fear that the Fed would pick up more of a hawkish
rhetoric, which they didn’t do.It was probably patience on their part, even after the uptick in inflation
in May.”
Originally posted here –
Stock markets rally and pound hits five-year high after Federal …
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