January’s Fed meeting was a highly anticipated event, more so than usual because of the volatility in markets. And it didn’t disappoint. The market finally saw the U-turn in monetary policy that it had been waiting for, sending the Dow up through 25,000 and the S&P 500 1.5% higher.
The Fed rally has continued through to Asia, pushing bourses to 4-month highs. Europe is also set for a positive start after the opening bell.
Across the end of last year, the markets had grown increasingly nervous that the Fed was on the cusp of a big policy error by remaining on its hiking path despite growing signs of weakness in the global economy. As a result, stocks dropped heavily fearing that higher borrowing costs would damage the economy at a time when global growth was also slowing.
On Wednesday, the Federal Reserve kept rates unchanged, as was broadly expected. They also dropped the promise of further gradual increases signalling that the rate hiking cycle is on hold. The dollar dived against major peers as investors digested the Fed’s change in tone.
Let’s not forget just six weeks ago, Jay Powell was still prepared to charge ahead with rate rises across this year. Such a dramatic change in policy in such a short space of time is highly unusual.
Gold shines post Fed
Gold is moving northwards in early trade on Thursday, putting it on track for its 5th straight positive session. Gold has been a clear winner of a more patient Fed, the yellow metal jumped to $1323, an 8-month high overnight with potential to run higher. Gold's price jump fits its tendency to shine in a lower interest rate environment. There is a reduced opportunity cost of holding a non-yielding assets like precious metals.
Facebook (NASDAQ:FB) beats estimates
Adding to the good news, Facebook reported revenue that beat estimates, as advertisers opted to remain with Facebook despite a series of scandals. Daily active users were up 9%, including an increase in more mature markets such as Europe, which had been a cause for concern. The reality is advertisers would struggle to find an audience this size elsewhere and for that reason they are sticking with the tech giant despite its name being dragged through the mud.
Trade talks to set the tone
With a dovish Fed confirmed and impressive results from Facebook, traders will now turn to US – China trade talks for clues about the next direction.
The two-day, high level trade talks began in Washington on Wednesday. With the deadline to the truce just days away, the stakes are high. So far there has been little indication from the Chinese that they are willing to address the core issue of US IP, meaning the two sides could struggle to come to an agreement. If no deal is reached by 2nd March, Trump has threatened to more than double tariffs on Chinese goods.
Opening calls
FTSE to open 8 points higher at 6949
DAX to open 29 points higher at 11210
CAC to open 15 points higher at 4989