Wall Street saw record highs back in its sights Thursday as world shares and bonds soared from the Federal Reserve’s decision not to hike rates.
- Britain’s FTSE 100 .FTSE climbed 1.3 percent.
- Germany’s DAX .GDAXI and France’s CAC 40 .FCHI both jumped almost 2 percent.
- Third day of gains expected in New York.
- Oil and commodities firms gained the most as oil and metal prices rose.
- Weakened dollar made climbing easy for the euro, pound, Swiss franc.
- Yen also hit a four-week high of 100.10 against the greenback.
- Larry Hatheway, fund manager GAM's head of multi-asset portfolios: “The looser for longer message from the Fed and the lowering of the median point of rate rise projections is seen as a plus for risk assets, as can been seen in global equities.”
- Reserve Bank of New Zealand struggling with too-low inflation.
- RBNZ held rates steady on Thursday but renewed pledge to cut again even as much of the domestic economy grows briskly.
(LONDON, UK) Wall Street had record highs back in its sights on Thursday as world shares and bonds rallied after the Federal Reserve signaled an increasingly cautious approach to future U.S. rate increases.
European markets followed Asia's lead, with Britain’s FTSE 100 .FTSE climbing 1.3 percent and Germany’s DAX .GDAXI and France’s CAC 40 .FCHI both jumping almost 2 percent ahead of what was expected to be a third day of gains in New York. [.N].
Oil and commodities firms .SXPP gained the most as oil LCOc1 and metal prices rose, while a weakened dollar .DXY made the climbing easy for the euro EUR=, pound GBP= and Swiss franc CHF=. [/FRX]
The yen also hit a four-week high of 100.10 against the greenback JPY= and the overnight drop in U.S. government bond yields US10YT=RR[US/] saw German Bund yields DE10YT=TWEB move decisively back into negative territory. [EUR/GVD]
"The looser for longer message from the Fed and the lowering of the median point of rate rise projections is seen as a plus for risk assets, as can been seen in global equities," said fund manager GAM's head of multi-asset portfolios, Larry Hatheway.
The Fed did signal it could hike rates by year-end as the labor 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 percent from 3 percent.
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 percent <0#FF:> from 59.2 percent, according to CME Group's FedWatch tool.
Westpac analyst Richard Franulovich noted that back in June the median 'dot plot' - the rate moves expected by the Fed's members - showed five hikes to end-2017. Now it is down to just three.
"We do not feel that the dollar has the wherewithal to make a more concerted run higher in the next few weeks," he added. "The FOMC is unlikely to deliver anything more than a very 'dovish' December hike."
Before that also comes the uncertainty of U.S. elections, added GAM's Hatheway.
Another central bank struggling with too-low inflation is the Reserve Bank of New Zealand, which held rates steady on Thursday but renewed a pledge to cut again even as much of the domestic economy grows briskly.
The RBNZ's blunt statement that further easing would be needed knocked the local dollar down 0.2 percent to $0.7334 NZD=, but the market has found it hard to sell a currency that still offers an overnight interest rate of 2 percent.
OIL ON THE BOIL
The Australian dollar AUD= edged up to an almost two-week high of $0.7641 after new Reserve Bank of Australia Governor Philip Lowe said interest rate cuts and a weaker currency were helping the economy, but that it was "not particularly useful" to keep cutting rates in the hope that this would eventually lift growth.
Indonesia and Turkey took a different view as both cut their rates, the latter for the seventh month running. There have now been almost 200 cuts worldwide since the start of last year. (graphic reut.rs/24kleab)
In commodity markets, gold traded down 0.3 percent at $1,332.63 an ounce XAU=, having climbed 1.7 percent as the U.S. dollar declined on Wednesday.
Oil prices showed no sign of fading though, having added as much as 3 percent on Wednesday after a third surprise weekly drop in U.S. crude stockpiles boosted the demand outlook in the world's largest oil consumer.
Another supportive factor was an oil workers' strike in Norway, which threatened to cut North Sea crude output.
U.S. crude (WTI) futures CLc1 advanced 1 percent to $45.83 after soaring 2.9 percent on Wednesday. Brent crude futures LCOc1 rose 0.8 percent to $47.21, adding to gains of 2 percent on Wednesday.
Industrial metals [MET/L] CMCU3 surged too, along with emerging market assets, on the hope that low global interest rates will boost both growth and demand for resources. Over half of the main emerging economies are commodity producers. [EMRG/FRX]
MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS closed up 1.1 percent in its sixth straight session of increases, just 0.9 percent shy of its one-year high touched earlier this month.
"The market got what it expected/wanted: Another dose of central bank support for markets following the Bank of Japan meeting," said Daniel Morris, senior investment strategist at BNP Paribas Investment Partners in London.
The U.S. session will see weekly jobless claims and monthly house price figures published, with euro zone consumer confidence data set to show how shopper confidence there is holding up due at 1400 GMT. ECONG7
This article was contributed by Reuters