Shares climb on Fed commitment

Dollar rises sharply against yen after US Federal Reserve cuts stimulus

Traders on the floor of the New York Stock Exchange after the Dow Jones Industrial Average closed up 293 points  yesterday following the Federal Reserve announcment. Photo: Getty Images

Traders on the floor of the New York Stock Exchange after the Dow Jones Industrial Average closed up 293 points yesterday following the Federal Reserve announcment. Photo: Getty Images

Thu, Dec 19, 2013, 07:41

Asian share markets rose today after the Federal Reserve drew the sting from tapering its stimulus by recommitting to low interest rates, leaving Wall Street at record heights and the dollar galloping above 104.00 yen for the first time since 2008.

The dollar was a major beneficiary, surging as far as 104.37 yen at one point before pausing at 104.13. The euro toppled back to $1.36, from a $1.38 top.

The slide in the yen was viewed as positive for Japanese exports and profits, and thus for the Nikkei which climbed 1.7 per cent, hitting its highest closing level in six years.

Fast Retailing, Asia’s biggest apparel chain, climbed 4.5 per cent, pushing Japan’s Nikkei 225 Stock Average to its highest close since 2007 as the yen touched a five-year low to the dollar. Fanuc, a maker of factory robotics, rose 4.1 per cent to a record in Tokyo. Caltex Australia surged 13 per cent as the petroleum refiner said profit may climb to A$340 million (€219 million).

After months of agonising, investors took the Fed’s decision to trim its bond buying by $10 billion to $75 billion a month as a modest step and one the US economy could well withstand.

Crucially, the Fed softened the blow by making its forward guidance even more dovish.

“It likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the committee’s 2 per cent longer-run goal,” the Fed statement said.

Alan Ruskin, global head of G10 currency strategy at Deutsche Bank in New York, noted the Fed’s forecasts for the funds rate had also been trimmed out to the end of 2016.

“This is a very dovish taper-lite where the Fed has done its utmost to provide an offset with forward guidance,” said Ruskin.

“It tends to elevate the importance of the inflation rate in decision making should it be meaningfully undershooting target, which is very constructive for risky assets.”

The market seemed to agree, with the Dow ending Wednesday up 1.84 per cent, while the S&P 500 gained 1.66 per cent and the Nasdaq 1.15 per cent.

Stocks gained from Sydney to Seoul, while MSCI’s broadest index of Asia-Pacific shares outside Japan edged up 0.2 per cent.

Financial bookmakers expected UK, Germany and French equities to rise as much as 1 per cent today.

Agencies