Party-on is global markets’ takeaway from Fed as dollar weakens

The Stoxx Europe 600 Index rose to its highest level in almost 2 weeks, while Asian shares climbed for a sixth day, after the Fed on Wednesday left interest rates unchanged


Returns on assets around the world have increased this year amid speculation that central banks will continue to support growth. Photo: Bloomberg
Returns on assets around the world have increased this year amid speculation that central banks will continue to support growth. Photo: Bloomberg

Hong Kong/Frankfurt: The Federal Reserve is keeping the music playing for global financial markets, with stocks, bonds and commodities rallying to Chair Janet Yellen’s tune of lower long-term rates.

The Stoxx Europe 600 Index rose to its highest level in almost two weeks, while gauges tracking Asian shares and raw-materials prices climbed for a sixth day, after the Fed on Wednesday left interest rates unchanged and scaled back its projections for hikes in 2017 and beyond. The dollar weakened, with emerging market currencies strengthening the most. New Zealand’s bonds surged after its monetary authority said further policy easing is expected, while Germany’s 10-year yield slid to a two-week low.

Loose monetary policies in the US, Europe and Asia have helped drive gains in stocks, bonds and commodities this year and the latest signals from central bankers suggest the era of cheap money has further to run. While the Fed still sees a rate hike in 2016, its projection for increases in 2017 was trimmed to two from three. Japan’s central bank has pledged to overshoot its 2% inflation goal and took steps to limit the negative side effects of its record stimulus. Norway held its key rates unchanged at a record low on Thursday.

“The Fed was certainly very important and they have kept the liquidity tap on,” said David Schnautz, a director of fixed income strategy at Commerzbank AG in London. “The hunt for yield is on. The tide lifts all boats and the ones being lifted the most are the so-called high yielders.”

Returns on assets around the world have increased this year amid speculation that central banks will continue to support growth. Global equities have risen 5.3%, while a gauge of commodity prices advanced 9%, and the Bloomberg Barclays Global Aggregate Total Return Index is up 9.1% in 2016.

Stocks

The Stoxx 600 advanced 1.3% at 10:59am in London, heading for its first back-to-back gains in more than two weeks. All industry groups progressed, with Rio Tinto Group and BHP Billiton Ltd. pushing a gauge of commodity producers to a one-month high, while energy companies advanced in line with rising crude prices.

A.P. Moeller-Maersk A/S climbed 1.1% after Denmark’s biggest company said it will split into separate transport and energy businesses. Fingerprint Cards AB added 4.8% after a report that a Chinese company approached the Swedish maker of biometric sensors this summer about a potential merger.

Futures on the S&P 500 added 0.2%, indicating US equities will extend gains after rising 1.1% in the last session. Investors will look today to US data on jobless claims and sales of existing homes for further signs of the health of the world’s biggest economy.

The MSCI Emerging-Markets Index climbed for a fourth day after the Fed’s decision. Investors in search of higher-yielding assets have added money to US-listed funds that invest in emerging-market exchange-traded funds for 16 consecutive weeks.

Raw-materials producers also led gains in Asia. The MSCI Asia Pacific excluding Japan Index rose 1.1%. Japanese markets were shut for a holiday.

Hanjin Shipping Co., the South Korean container line that has sought bankruptcy protection, surged 30% after securing new loans from top shareholder Korean Air Lines Co., which rallied 5.4%.

Currencies

The Bloomberg Dollar Spot Index fell 0.3%, after sliding 0.7% in the aftermath of the Fed’s decision.

The yen weakened 0.3%, after volatile trading on Wednesday that saw swings of more than 1% in both directions following the BOJ meeting. The Japanese central bank’s policy tweaks give it scope to keep easing to revive the economy and inflation, while limiting the negative impact on bank earnings.

The South Korean won and South Africa’s rand led emerging-market currencies higher, with those of resource-exporting nations among the best performers. Australia’s and Canada’s dollars appreciated at least 0.5 percent versus the greenback.

The kiwi weakened 0.2% after the Reserve Bank of New Zealand kept its key interest rate at a record low on Thursday and said further reductions will be needed in order to move inflation toward its 2% target. Investors increased bets on a November rate cut, with the probability of a move by then rising by 19 percentage points to 70% in the swaps market.

Bonds

Bond markets rallied across Asia, led by a surge in New Zealand’s 10-year securities. In Europe, Germany’s 10-year bund yield slid to minus 0.05%, having ended the last session near zero.

The rate on similar-maturity US Treasuries fell one basis point to 1.64%, after decreasing four basis points on Wednesday.

The yield on 10-year notes in South Africa declined 10 basis points to 8.49%, the lowest since 23 August. Russia plans to sell an additional $1.25 billion of Eurobonds, tapping a May 2026 issue one day after the Fed’s announcement.

Turkey’s central bank will announce its decision on interest rates at 2pm in Istanbul. The bank will cut its overnight lending rate 25 basis points to 8.25%, according to the median estimate in a Bloomberg survey of 16 analysts.

Commodities

The Bloomberg Commodity Index advanced for a sixth day, rising 0.8%, as the Fed rate decision weakened the dollar.

Oil extended gains after weekly government data showed US crude inventories dropped by 6.2 million barrels last week to the lowest since February. A Bloomberg survey before the report had forecast a 3.25 million barrel gain.

OPEC members Saudi Arabia and Iran, whose rivalry derailed an oil-supply accord earlier this year, held private talks in Vienna a week before the organization meets with Russia in Algeria. The face-to-face discussions between the fierce regional rivals show diplomatic efforts to secure a meaningful deal in Algiers are still under way despite market skepticism that there will be any pact to curb production.

Nickel surged 1.7% to $10,525 a metric ton, the highest in six weeks, as the dollar weakened and investors weighed the prospect of more mine closures in the Philippines. Other industrial metals also gained.

Iron-ore futures jumped as much as 5.3% on China’s Dalian Commodity Exchange, the biggest advance in more than a month, and coking coal touched its highest level since January 2014. Huatai Futures Co. said coal prices are being boosted by speculation of a shortage and that’s spurring gains across the steel supply chain. Steel reinforcement bar increased as much as 3.2% in Shanghai. Bloomberg

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