• Home
• /
• Markets

Stocks remain buoyed

Investors breathe sigh of relief on Fed’s interest rate decision

Investors continued on Friday to breathe a sigh of relief that the US central bank has committed to keeping interest rates low even though it has decided to start pulling back on its monetary stimulus.

Stocks in Europe pushed higher following a largely solid, if unspectacular, performance in Asia, where worries over China persisted. US futures also pointed to modest gains at Wall Street’s opening.

Friday’s volumes are expected to be fairly low as many traders pack up for the Christmas and New Year break, especially now that the Fed has decided to reduce its stimulus by $10 billion a month starting from January. Mindful of the impact on markets, the Fed emphasised on Wednesday that its main interest rate would remain low until US unemployment falls below 6.5 per cent. It’s now 7 per cent.

Although the stimulus has sent global stock markets soaring, investors mostly met the news with relief that the decision had finally been made — and that low interest rates would continue to support up the US economy.

“These gains may continue in the coming weeks, although with the holiday season now upon us, trading volumes will be significantly reduced,” said Craig Erlam, market analyst at Alpari. “The economic calendar will also provide less direction for the markets, making any significant moves unlikely.”

In Europe, the FTSE index of British shares rose 0.4 per cent to 6,613. The French CAC-40 was up 0.3 per cent to 4,189, while Germany’s DAX climbed 0.6 per cent to 9,387.

US stocks appeared poised to open up. Dow futures were up 0.2 per cent at 16,142, while S&P futures rose the same rate to 1,806.

Investors are also keeping their eyes on whether China’s monetary authorities will be able to prevent a new cash crunch at its banks. The People’s Bank of China moved late Thursday to inject liquidity after the interbank market showed stress, but concerns over a repeat of the summer’s credit crunch weighed on the market.

That weighed on the performance of a number of markets in Asia. China’s Shanghai composite dropped 2.0 per cent to 2,181.94 on fresh concerns of a shortage of credit. Hong Kong’s Hang Seng index also fell 0.3 per cent to 22,812.18.

Elsewhere in Asia, Japan’s Nikkei index recovered some early losses near a six-year peak at 15,837.31 as investors welcomed the continued weak yen, which is expected to boost exports.

The dollar has largely been ascendant since the Fed’s decision as traders price in the prospect of less new money being created. The dollar is trading 0.1 per cent higher at 104.44 yen, just shy of its earlier five-year high of 104.59 yen.