Stocks jump, bonds strong on Fed statement

World stock indexes jumped and the Nasdaq hit a record high on Thursday while bonds rallied, a day after the Federal Reserve signalled an increasingly cautious approach to future US rate increases.

The dollar fell to its lowest in a week against a basket of major currencies as investors sold the greenback following the Fed’s reduction of longer-term interest rate expectations.

The Fed did signal it could rise rates by year-end as the jobs 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 per cent from 3 per cent.

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 per cent from 59.2 per cent, according to CME Group’s FedWatch tool.

“The Fed probably appeared less hawkish than what the markets had expected,” said Ryan Larson, head of equity trading at RBC Global Asset Management in Chicago. “I think the market continues to be focused on the Fed pushing a hike for later as a good thing rather than bad.”

Dow Jones

The Dow Jones industrial average was up 118.58 points, or 0.65 per cent, to 18,412.28, the S&P 500 had gained 12.05 points, or 0.56 per cent, to 2,175.17 and the Nasdaq Composite had added 33.20 points, or 0.63 per cent, to 5,328.38.

The Iseq was ahead by almost 1 per cent, led by financial stocks.

In the bond market, benchmark US yields hit near two-week lows on revived bets the Fed would raise interest rates slowly due to weak economic growth and inflation stuck below its 2 per cent goal. In early trading, benchmark 10-year Treasury notes rose 12/32 in price for a yield of 1.627 per cent, down 4 basis points from Wednesday.

The euro region, meanwhile, had its best day since Brexit. Benchmark German 10-year bund yields dropped the most since June 24th, while Irish yields also declined.

The dollar index dropped 0.5 per cent to 95.189.

Oil

Oil climbed after a surprisingly large drop in US crude inventories emboldened investors ahead of next week’s meeting between

Opec

members and Russia to discuss supply.

Brent crude futures rose 1.9 per cent to $47.73 a barrel, while US oil futures jumped 2.5 per cent to $46.46. –

Reuters/Bloomberg