Global equities advance on Fed rates

AFP

European stock markets rallied on Thursday, after solid gains in Asia, as the US Federal Reserve opted against lifting interest rates — but signalled action later this year. The Fed kept its benchmark interest rate unchanged for the sixth straight meeting, saying it needs to see a bit more sign of strength in the US economy.
However, Fed Chair Janet Yellen said the economy continues to broadly show progress. Officials indicated they foresee one rate hike before the end of 2016.
“Despite there being enough to suggest a rate hike in November or, even more likely, December, the markets were buoyed by the simple fact that the Federal Reserve opted for inaction,” said Spreadex analyst Conor Campbell. In reaction, London stocks won 1.2 percent, while Frankfurt and Paris each jumped about 1.9 percent in value. In Asia, Hong Kong added 0.4 percent and Shanghai rose 0.5 percent, as the prospect of cheap cash
for longer sparked a raft of gains. Tokyo was shut for a public holiday.
At the end of one of its most anticipated meetings for some time, Fed policymakers said the economy continued to improve and the argument for a rise was strengthening but more evidence of sustained progress was needed.
However, while they lowered their growth forecast for this year, the policy committee said the rebound would continue through the second half, and suggested borrowing costs could rise before the end of the year. The Fed news has meanwhile sent the US dollar sliding against the European single currency. “Market expectations regarding the pace and trajectory of Fed tightening have altered dramatically since the start of last year,” noted Rabobank analysts.
“The change in expectations over the period have had a dramatic impact on risky assets and on the US dollar.” The bank left the benchmark federal funds rate at an ultra-low 0.25-0.50 percent, still above the negative rates of the European and Japanese central banks but well below what the Fed itself had envisioned at the beginning of 2016.
The decision to stick to the easy money policy came hours after the Bank of Japan overhauled its own stimulus programme to target inflation and held off cutting interest rates further into negative territory.