Dovish Fed boosts emerging assets, stocks at 20-month high

Mar 19, 2017, 00:42
Dovish Fed boosts emerging assets, stocks at 20-month high

Investors lodged large bets on the dollar after Donald Trump's U.S. presidential election win past year, expecting his mix of tax reform, capital repatriation and new public spending to raise inflation in the United States and in turn drive Fed rates higher. South Korea´s market climbed 0.6 percent, and even Japan´s Nikkei managed a slight rise despite the damage done to exporters by a firmer yen.

S&P 500 e-minis were up 2.75 points, or 0.12 per cent, with 53,199 contracts traded.

As yields recovered a little on Thursday, currency traders bought back cautiously into the dollar, with its basket index - which measures it against six major peers - slightly above the one-month low it had hit in the immediate aftermath of the Fed but still down on the day.

Spot gold gained 0.7 percent at $1,227.43 an ounce by 3:03 p.m. EDT (1903 GMT), after touching $1,233.13, the highest since March 6. But a higher US budget deficit is likely to dampen that view.

Shares of Tesla rose 2.8 per cent to US$262.94 (RM1,166) after the electric carmaker said it would raise about US$1.15 billion as the company speeds up the launch of its Model 3 sedan.

The 10-year yield was at 2.5402 percent in early trade, from its last close of 2.524. After the United Kingdom vote last summer to leave the European Union, investors were anxious about whether a wave of nationalism across the continent could eventually break the European union apart. The greenback had struggled to make good on that promise until the past fortnight, when a combination of upbeat data and the continued positive momentum of the stock market underwrote a change in Fed policymakers' rhetoric.

That gradual pace is one reason investors remain enthusiastic about stocks in the face of rising rates, which historically have spooked stock holders because they can slow economic growth and corporate profits. "I would expect gold to trade in a wide band of $1,190 - $1,230 between the French elections and US Federal Reserve meeting in May", said Jiang Shu, chief analyst at Shandong Gold Group.

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The euro was also buoyed by a Dutch election defeat for far-right leader Geert Wilders which eased broader fears of a populist drift in European polls this year.

But Fed officials made a concerted effort to warn the markets of the high likelihood of a Fed rate hike and expectations then soared to a near-certainty, Chen said. The Bank of England held its interest rates at record lows.

European shares also rallied, with the pan-European STOXX 600 index climbing half a per cent to its highest level since December 2015 on relief over the Fed's cautious tone, as well as the Dutch election result.

COMMODITIES: Benchmark U.S. crude slipped 16 cents to $48.70 a barrel.

"Gold, copper and oil all rallied as the dollar dropped". If it closes lower Thursday, that would be the eighth decline in the last nine days.

CURRENCIES: The euro from dipped to $1.0746 from $1.0749 late Thursday, and the British pound fell to $1.2367 from $1.2358.