independent

Thursday 17 April 2014

World markets rise after Fed move

An investor looks at the stock price monitor at a private securities company in Shanghai (AP)

Global markets have climbed after investors took the US Federal Reserve's decision to trim its stimulus as a vote of confidence the American economy is strengthening.

Oil slipped to under 98 US dollars a barrel.

Tokyo's Nikkei 225 index for the region's biggest market gained 1.7% to 15,859.22 while Sydney's S&P ASX 200 added 2.1% to 5,202.20. Taiwan, New Zealand and Jakarta also rose.

In Europe, France's CAC 40 gained 1.1% to 4,156.33 and Germany's DAX index rose 1% to 9,276.33.

China's benchmark Shanghai Composite Index shed 0.9% to 2,127.79 as a rise in money market interest rates pushed up trading costs and raised fears of an economic slowdown. Hong Kong and India also fell.

The Fed's decision reassured investors who had been jittery about a possible reduction in its bond-buying that has helped to support stock prices.

"Growth outlook perceptions have improved because of the Fed's confidence in the economy," said economist Dariusz Kowalczyk of Credit Agricole CIB. "Equities in the US are trading very well, and the reaction is being followed by other equity markets in Asia."

The impact was expected to ripple through the global economy, possibly affecting exchange rates and prompting other central banks to alter policy.

Hong Kong's Hang Seng declined 0.2% to 23,094.74 after analysts warned the Fed's change meant banks there might see an outflow of deposits. The territory's chief central banker warned of possible "market volatility" and said institutions have been warned to avoid excessive lending.

The Fed tempered its pullback by indicating it will keep interest rates close to zero for longer than previously expected.

Starting in January, it will reduce its bond-buying programme to 75 billion dollars (£46bn) a month from 85 billion dollars (£52bn). The reductions, or tapering, will be the first step toward winding down a programme that has been in place since the 2008 financial crisis.

That "token taper" leaves the Fed free "test the waters" and adjust its approach if needed, said Stan Shamu, a strategist for Australia's IG Markets.

"Solid economic improvement for the U.S. will help the global recovery along and ultimately company earnings," said Mr Shamu in a report.

Taiwan's Taiex gained 0.7% to 8,407.40 and New Zealand was up 0.6% at 5,064.45. Seoul was flat at 1,975.65.

In China, funding costs overshadowed the US news. Money market rates have risen to an unusually high 8%, sparking fears China might see a repeat of June's credit crunch, with repercussions for economic growth.

Futures for the Dow Jones industrial average and broader S&P index were off 0.2% in pre-market trading on the Chicago Mercantile Exchange.

By purchasing bonds and holding down long-term interest rates, the Fed has encouraged borrowing and hiring. But all that buying made bonds more expensive than stocks so investors shifted money into equity markets.

Some investors worried less stimulus might dent US demand, hurting Asian exporters.

At the same time, governments of developing countries complained the Fed's effort to stimulate activity by forcing down commercial lending rates was causing money to flood into their economies in search of higher returns. That pushed up their currencies, making exports more expensive and less competitive abroad.

Asian central banks responded by trying to hold down their currencies, especially after a decline in Japan's yen gave Japanese exporters a price advantage over their own competitors.

In currency markets, the dollar declined to 103.935 yen from Wednesday's 104.127 yen. The euro declined to 1.3660 dollars from Wednesday's 1.3686 dollars.

AP

Press Association

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