Relief that the Federal Reserve has finally removed the uncertainty over the timing of the first US rate hike has catapulted European stocks higher on Thursday. The gains in European shares track those made in US markets during Janet Yellen’s press conference in which she emphasised the gradual and data-dependent pace of future rate rises.
Even gradually raising US interest rates stand in stark contrast with recently enlarged monetary stimulus in the Eurozone. The euro is lower versus the dollar, further supporting European stocks which can gain from the export advantage of a lower exchange rate.
The Fed cleverly tweaked its economic outlook by revising lower its forecast for inflation but revising higher its forecast for economic growth. The implication is a goldilocks scenario the market likes; growth without inflationary pressures to warrant much higher rates. The Fed was positive on the US labour market saying it has improved "appreciably." Interest rate projections (dot plots) remained basically unchanged for four rate hikes next year, finishing the year at just under 1.5%. The dot plot can be treated with a grain of salt since the “actual path of federal funds rate will depend on incoming data” according to Ms Yellen.
Another drop in the price of oil, taking WTI crude back below $35 per barrel has failed to dampen bullish sentiment in the face of economic positivity from the Fed.
Old Mutual PLC (L:OML), Standard Chartered (L:STAN) and supermarket shares continue this week’s strong form at the top of the FTSE 100
US stocks look set for a stronger open, building on yesterday’s gains. The Fed delivered the "dovish hike" markets had been looking for. A new rising interest rate environment helped the US 2 year yield cross 1% for first time since 2010 but utilities, which do best in a low rate environment have been top rising stocks.
USA pre-opening levels
S&P 500: 3 points higher at 2,076
Dow Jones: 33 points higher at 17,782
Nasdaq 100: 14 points higher at 4,678
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