World stocks surge on Fed pledge to pause, dollar slips

NEW YORK -- The dollar slid and equities surged on Wednesday, fueled by Boeing and Apple's results and extended after the Federal Reserve pledged to be patient with future interest rate hikes, a change in tone that stock investors interpreted as a buy signal.

The Fed, in its policy statement at the end of a two-day meeting, struck the language from its December policy statement that indicated further rate hikes would be appropriate in 2019. That language had roiled markets amid signs of slower global growth.

US stocks extended gains and bond yields fell as markets got what they were hoping for, said Mohamed El-Erian, chief economic adviser at Allianz in Newport Beach, California. "This marks a full 180 from what the Fed was signaling just a few months ago," he said.

Scott Minerd, global chief investment officer at Guggenheim Partners in Santa Monica, California, said the Fed's pause would further extend the economic expansion, allowing excesses to continue to build and increasing risks of financial instability.

"The Fed refilled the punch bowl and the party goes on. Buy risk assets," Minerd said.

The Fed's policy statement indicates the US central bank will remain on a dovish path, which is very supportive for risk assets, at least on the short term, said Putri Pascualy, managing director for PAAMCO in Irvine, California.

"The back-drop of slowing economic growth on a global basis is the 800 trillion gorilla in the room," Pascualy said.

The MSCI world equity index, which tracks share performance in 47 countries, rose 1.2 percent following gains in Asia overnight. The FTSEurofirst 300 index of leading shares in Europe closed up 0.41 percent.

The Dow Jones Industrial Average rose 434.9 points, or 1.77 percent, to 25,014.86. The S&P 500 gained 41.05 points, or 1.55 percent, to 2,681.05, and the Nasdaq Composite added 154.79 points, or 2.2 percent, to 7,183.08.

Upbeat results from Boeing and Apple late on Tuesday provided investors early relief.

Boeing shares rose 6.25 percent after the world's largest planemaker raised its profit and cash flow expectations for 2019 amid a boom in air travel. Boeing also indicated it had overcome supplier delays that snarled 737 production last year.

Apple results provided some reassurance as the iPhone maker reported sharp growth in its services business. Its shares gained 6.83 percent

Oil prices rose, paring gains of more than 1 percent, as the potential for supply disruptions following US sanctions on Venezuela's oil industry lifted prices.

Stocks listed in London jumped more than 1 percent after British lawmakers late on Tuesday rejected a proposal in Parliament that aimed to prevent a potentially chaotic "no-deal" Brexit, a vote that initially pushed sterling sharply lower.

The exporter-heavy FTSE 100 in London rose 1.45 percent as its components often are boosted by a weaker pound because its multinational companies earn a large portion of their revenue abroad in foreign currency.

Sterling rose 0.04 percent to $1.3071 after sliding about 0.7 percent against the dollar and the euro following parliamentary votes on Brexit.

"The vote is not fundamentally changing the way the market's talking about Brexit," said Hetal Mehta, Legal & General Investment Management senior European economist.

Payrolls processor ADP reported that the US private sector added 213,000 jobs in January, which beat forecasts for gains of 178,000. But the monthly total was lower than the 271,000 jobs added in December.

The dollar index fell 0.39 percent to 95.447. Against the yen, the dollar fell 0.33 percent to 109.02.

The euro gained 0.39 percent to $1.1475.

Benchmark 10-year U.S. Treasury notes rose 6/32 in price to push yields down to 2.6900 percent.

US West Texas Intermediate crude futures gained 92 cents to settle at $54.23, while international Brent crude futures rose 33 cents to settle at $61.65 per barrel.

source: news.abs-cbn.com

In a shift, Fed will be 'patient' on future US rate hikes

WASHINGTON - The US Federal Reserve on Wednesday held interest rates steady and, in a formal policy shift, vowed to be patient in further lifting borrowing costs, the clearest signal yet the tightening cycle it began in 2015 may have ended.

Citing rising uncertainty about the US economic outlook, Fed Chairman Jerome Powell said the case for raising rates had "weakened" and, in a statement, the US central bank dropped its earlier expectation for "some further" tightening.

The Fed also shifted to a more dovish stance on its ongoing shedding of assets, saying it was prepared to adjust its plans based on economic and financial developments.

Powell, speaking to reporters after the end of the Fed's latest 2-day policy meeting, said the central bank would likely stop trimming its $4.1 trillion balance sheet sooner, leaving it with more assets than previously expected.

"The situation now calls for patience," he said, referring to the prospect of further rate hikes. "I think it's the right thing. I feel strongly that it is."

Taken together, the balance sheet announcement and the shift on rate hikes was meant to convey maximum flexibility from a central bank buffeted in recent weeks by financial market volatility, signs of a global economic slowdown and a partial US government shutdown that clouds the economy.

"This marks a full 180 from what the Fed was signaling just a few months ago," said Mohamed El-Erian, chief economic adviser at Allianz, in Newport Beach, California.

After the Fed statement, US stocks added to gains with the S&P 500 index rising 1.5 percent, while the dollar and short-term yields fell as investors gauged an even lower probability of additional rate hikes any time soon.

Market expectations of future rates fell further. Contracts tied to the Fed's policy rate continued to price about a one-in-4 chance of a hike in 2019, and contracts maturing in 2020 were signaling a small but rising chance of a rate cut then.

The Fed's policy statement left its overnight benchmark lending rate in a target range of 2.25 percent to 2.50 percent.

The US central bank said continued economic and job growth was still "the most likely" outcome. But it removed language from its December policy statement that risks to the outlook were "roughly balanced."

CLOUDIER OUTLOOK

The Fed raised rates 4 times last year including in December, when it signaled it would do so twice more this year.

The economic outlook, however, has become more clouded as a result of recent volatility in financial markets and signs that growth is slowing overseas, including in China and the euro zone. There are also fears the 35-day partial shutdown of the US government may crimp consumer spending.

"In light of global economic and financial developments and muted inflation pressures, the committee will be patient" in determining future rate hikes, the Fed's rate-setting committee said in the policy statement.

The Fed made no change to the $50 billion maximum monthly runoff of Treasury bonds and mortgage-backed securities from its balance sheet. Some traders have urged it to slow or halt its pullback from the bond markets, at least for now.

In a separate statement, the Fed that it had decided to continue managing policy with a system of "ample" reserves, reinforcing the notion that the rundown may end sooner than expected.

"Overall this signals the Fed will not be on autopilot going forward," said Justin Lederer, Treasury analyst at Cantor Fitzgerald in New York.

The downgrade in the Fed's language around rate increases included a change in its description of economic growth from "strong" to "solid," and it noted that market-based measures of inflation compensation have "moved lower in recent months."

The Fed's policy decision was unanimous.

source: news.abs-cbn.com