Market commentary: Stocks rally following U.S. Federal Reserve meeting minutes

Stocks rallied after U.S. Federal Reserve meeting minutes reaffirmed policy makers’ faith in the world’s biggest economy and stressed the pace of any rate increases will be slow. 

Markets reacted with some calm to the October FOMC minutes which pointed to a Fed that were still on course to raise rates in December. Specifically, the minutes confirmed that ‘most participants anticipated that, based on their assessment of the current economic situation and their outlook for economic activity, the labour market, and inflation, these conditions could well be met by the time of the next meeting’.

The Fed minutes showed officials concluded “it may well become appropriate” to raise rates in December and largely agreed tightening would be gradual.

As a consequence US equity markets had a strong session, with the Dow Jones increasing 1.42% and the S&P 500 increasing 1.62%. The positivity carried through to the Asian markets where the Nikkei closed up 1.07% and the Hang Seng closed 1.41% respectively. Over in Europe this morning, as of this morning its been a strong session too with the German DAX up 1.5% and the general composite up over 1% over consistent trading.

The dollar fell 0.33% against the euro with the euro regions currency regaining the 1.07 level, while precious metals and oil also climbed. Japan’s currency rallied from a three-month low as the central bank left monetary policy unchanged and said “inflation expectations appear to be rising."

Asian stocks and currencies have slipped this year amid investor concern that the U.S. economy isn’t strong enough to withstand the first rate increase since 2006. Economic reports since the Fed refrained from a rate rise in October have been encouraging, with payrolls logging the biggest gain this year and unemployment falling to 5 percent. There’s a 66 percent probability that policy makers will move in December, according to futures data compiled by Bloomberg.

In the commodities space, oil rallied from the lowest level in more than two months, gaining 0.2 percent to $40.84 per barrel in New York. U.S. inventories rose by 252,000 barrels last week, keeping supplies more than 100 million barrels above the five-year seasonal average, according to the Energy Information Administration.

OPEC is confident the market will stabilize itself, Suhail Al Mazrouei, the energy minister of the United Arab Emirates, said in Dubai. Palladium gained 0.5 percent, platinum climbed 1.1 percent while gold rose 0.5 percent after tumbling to $1,064.55 an ounce on Wednesday, the lowest since February 2010.

European sovereign bond yields continue to nudge lower. 10y Bund yields finished down just shy of 2bps at 0.504% and are now 19bps down from the high earlier this month. Yesterday also saw Germany issue record low 2y Bunds at auction yesterday, fetching a yield of -0.38%.

In fact this wasn’t the only case of a sovereign issuing negative yielding bonds yesterday. Portugal issued 12-month bills at an average yield of -0.006%, while outside the Eurozone Sweden sold 89-day bills at -0.416% and Denmark sold 3y bonds at -0.31%.

This article was issued by Simon Psaila, Treasury Officer at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.