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Reaction to the Fed’s Monetary Policy Statement, VIX ‘Fear’ Index at lowest level since early 2007
June 19, 2014 6:30 amVideo
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European equities moved higher on Thursday, tracking gains in US and Asian markets overnight as traders welcomed the dovish tone adopted by the Federal Reserve over monetary policy. This lifted the S&P 500 to a fresh record high and geared up Asian markets for a strong session, feeding into European prices this morning.
The Federal Reserve’s monetary policy statement pleased both equity and bondholders in the US, with Fed Chair Janet Yellen saying that accommodative monetary policy, rising home and equity prices and an improving global economy should boost US economic growth. As expected, the Fed cut its bond buying programme by a further $10bn to $35bn but the surprise was the upbeat statement on the US economy, with the central bank seemingly shrugging off recent data showing an uptick in inflation. Ahead of the Fed meeting, traders were worried that rising prices and oil price-spikes would bump up inflation, forcing the Fed to take a more hawkish stance. This proved not to be the case, with the Fed staying positive on the economic outlook while pledging to keep interest rates at ultra-low records.
In response, the S&P 500 jumped 0.8% on Wednesday, recording its best session in a month at 1956.98. By contrast, the VIX index, an indicator to gauge fear, dropped 12%, closing at its lowest level since February 2007.
Over in Asia, the Fed provided markets with a big boost but traders also cheered Chinese Premier Li Keqiang’s pledge to sustain China’s economic expansion forecast, saying that China will have “medium to high-level” growth in the long run. The Premier added that he promises his government will support the economy to avoid a hard landing scenario.
Meanwhile, Japan’s Nikkei 225 jumped 1.6%, on track for a fifth consecutive weekly gain. Elsewhere, Sydney’s S&P/ASX 200 rose 1.1%, its best session of 2014 after the FOMC statement and press conference bolstered market sentiment and sent global equities higher. Looking ahead, we have UK retail sales data and US weekly jobless claims figures out later today.
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