US government bonds rose after US claims for unemployment
benefits rose by more than expected last week, dimming expectations for growth
in the closely watched non-farm payrolls numbers due on Friday.
The Fed on Wednesday said it would spend $600 billion buying
longer-term Treasury bonds through to the end of next June as part of a renewed
quantitative easing (QE) program.
This was a little more than expected, but not enough to
spook markets with worries about a worse-than-anticipated US economic picture.
“The Fed did leave the door open and could take further
action later down the road. That might be another factor boosting investor
confidence,” said Keith Bowman, equity analyst at Hargreaves Lansdown in
London.
“We have got another major hurdle to come this Friday with
the release of US jobs data. The Dow Jones industrial average was up 126.93
points, or 1.13 percent, at 11,342.06. The Standard & Poor’s 500 Index was
up 12.41 points, or 1.04 percent, at 1,210.37. The Nasdaq Composite Index was
up 24.94 points, or 0.98 percent, at 2,565.21.
MSCI’s all-country world stocks index rose 1.85 percent on
the day taking the index to a level last seen before the collapse of investment
bank Lehman Brothers in September 2008. MSCI’s emerging market index gained 1.6
percent.
The pan-European FTSEurofirst 300 index of top European
shares was up 1.36 percent climbing to six-month highs and Japan’s Nikkei
closed up 2.17 percent.
“The (Fed) result was slightly pleasantly surprising,” said
Jonathan Schiessl, investment manager at wealth managers Ashburton in Jersey.
“The risk trade is back on.” The trade, which has been running on and off since
QE was first anticipated in late August, essentially involves buying emerging
markets for their better growth prospects and potential currency appreciation.
The US dollar slumped hitting a 28-year low versus the
Australian currency and a more than nine-month trough against the euro as a
Federal Reserve decision to print more money to buy $600 billion in Treasuries
prompted investors to seek returns elsewhere.
The dollar, seen as “the victim,” fell against a basket
currencies, with the US Dollar Index down 0.94 percent at 75.76.
The euro was up 0.79 percent at $1.4255, a nine-month high.
Euro gains are being restrained by concerns over euro zone debt, particularly
in Ireland and Greece.
Against the Japanese yen, the dollar was down 0.54 percent
at 80.60 from a previous session close of 81.040.
The Fed’s commitment to purchase Treasuries, implying low
funding costs, brought into focus an expected increased use of the dollar in
carry trades, in which the US currency is used to fund purchases in
commodities, emerging markets and higher-yielding currencies.
US government bonds were higher, but appetite for Treasury
supply in the post-Fed announcement world will be gauged later in the day in an
auction of $10 billion of reopened 10-year Treasury inflation-protected
securities.
The benchmark 10-year US Treasury note was up 29/32, with
the yield at 2.4728 percent. The 2-year US Treasury note was unchanged with the
yield at 0.332 percent. The 30-year US Treasury bond was up 1/32, with the
yield at 4.05 percent.
The Fed’s strategy is to prevent a slide in inflation from
becoming a deflationary spiral of falling wages, growth and business activity,
and market players say a dramatically steeper yield curve may be the new norm.
In energy and commodities prices, US light sweet crude oil
rose $1.53, or 1.81 percent, to $86.22 per barrel, and spot gold prices rose
$28.45, or 2.11 percent, to $1376.10 an ounce as the dollar weakened.
