Markets are on the up this morning as they continue to see saw with the boost this time coming from US markets.
Risk assets were in demand overnight as the US Federal Reserve said that interest rates across the pond are expected to stay at their current low level way beyond the previously expected time of mid-2013 and into 2014, most likely even the end. The Fed continues to fear their ultimate dread of possibly deflation in the future and so almost all of the members of the FOMC are calling for existing easy monetary policy to remain in place.
The fireworks set off last night were expected as it was the first time that the Fed used its new format for announcing its interest rate policy which is actually meant to make things more transparent and less volatile. No matter which way they did it, over a longer press conference or a shorter one, the news that interest rates are to remain as low as they are for longer sent buyers into a bit of a frenzy. The hints that there maybe other attempts to prevent the world’s biggest economy from going back into recession, in other words “QE3”, also got the bulls excited and so US markets continued their march higher. The S & P is now just under 4% off its 2011 high and the Dow is only a mere 1%. The Nasdaq 100 on the other hand has already surpassed its highs of 2012 indicating the true bullishness of US markets. European indices have some way to go however as they lag their US counterparts and even though we are higher at the open the initial optimism following the spike in US markets last night already seems to be fading out.
The FTSE is at 5740 at the time of writing attempting to recoup yesterday’s losses and the gains are being led by miners. They are basking in the rally after the big jump in the price of gold and copper, putting those stocks in high demand. Clients remain sceptical of the strength in indices being largely short of the likes of the FTSE and the longer the rally continues the more you have to think that at some point a bigger move to the downside is just around the corner. So far though since the beginning of October last year when you think “this is it”, the falls have failed to really follow through confounding the longer term bears.
The Fed’s pledge to keep interest rates between 0 and 0.25 percent until at least 2014 has signalled a very dovish stance and only meant one thing for FX and commodity traders yesterday and that’s sell the dollar. Continuing on from yesterday, we have seen the dollar fall against pretty much every one of their counterparts as riskier currencies look to claw back any recent losses they would have made. Currently, the euro is trading up against the dollar at 1.3110 and is sitting above its previous resistance of 1.3035 which could signal further upside. Over the near term support and resistance is seen at 1.3035, 1.2975, 1.2930 and 1.3160, 1.3195 respectively.
Investors long of gold yesterday evening would have been whooping with joy. The precious metal doesn’t pay interest so during a time of low interest rates it is often bought as an alternative asset and this was certainly the case yesterday as after the news from the Fed there was a spike of some 40 dollars, meaning the highest level since December 12th was reached at 1713.0. In total for the day, 45.2 bucks was added onto the price of the yellow brick, which closed at 1710.6. Support was also given from a slumping greenback and fear of inflation further down the road once the global economy gets back on its feet. This morning the bulls are taking a little bit off the top as gold trades at 1705.
The weekly oil inventories report from the US Dept of Energy showed a mixed bag with crude stockpiles rising higher than estimated yet gasoline inventories dropped against expectations of a rise. On the back of this, crude prices were kept around par until the Feds statement that interest rates were staying low for longer, which caused a slight rally, but only enough to push prices marginally higher. At time of writing, Brent crude trades at 110.41.